Babcock International Group PLC (LON:BAB) saw its shares drop on Thursday after the defence contractor lowered its full-year revenue growth target due to a temporary slowdown in its defence and marine work.
In a trading update issued ahead of today’s annual general meeting, the FTSE 250-listed firm said it now expected to see low single-digit underlying revenue growth for the full year, compared with a previous forecast of "low mid-single digit" growth.
READ: Babcock International full-year results meet expectations, revenue and profit rise
The group added, however, that it expects to achieve its underlying earnings (EBITDA) guidance for the full-year whilst continuing to reduce debt, and achieving a year-end net debt to EBITDA ratio of around 1.4 times as previously forecast.
Babcock said that around 83% of expected revenue is now in place for 2018/19and around 55% for 2019/20, with the combined order book and pipeline increasing to around £32bn.
It noted that the order book of signed contracts remains stable at around £18bn and the pipeline of bids in progress has increased to around £14bn, with the majority of the increase coming from new Marine opportunities.
The group said it continues to maintain a healthy financial position, with cash flow in the first quarter of the financial year similar to the same period the previous year.
As previously indicated, it added, it expects revenue, profit and cash flow to be second half weighted.
Shares still look too cheap, says Liberum
In a note to clients on Babcock, analysts at Liberum Capital said: “We expect 1-2% revenue growth, or 4-5% on an underlying basis.”
They added; “We expect Marine sales to be weak, despite International growth. Land still the principal source of weakness. At Aviation revenues are growing strongly and mobilisations are going well. At Nuclear, Babcock will have an ongoing role on Magnox and we expect news on Sellafield by year end.”
The analysts concluded: ”The shares may be down a little on weaker revenue but they still look too cheap.”
Liberum reiterated a ‘buy’ stance and 1,100p price target on Babcock shares, which in late morning trading were 11% lower at 714.6p.
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