Babcock International Group PLC (LON:BAB) has hit back at a shadowy research firm that claimed the engineering services firm has been “burying bad news about its performance” and that its leadership was “not up to the job”.
Boatman Capital Research, which said it spent six months compiling a report on Babcock’s shortcomings, sent a section of the document that focuses on the company’s Appledore shipyard in Devon to The Sunday Times last month.
READ: Babcock International shares blighted by RBC downgrade to 'sector perform' from 'outperform'
The report claimed the company had “failed to win new business” for the yard since building an offshore patrol vessel for the Irish navy and has used Appledore as a “piggy bank” by taking dividends of £11mln in the past two years.
The newspaper pointed out that the research firm is not traceable on Companies House and refused to disclose the identity of its directors.
Babcock 'strongly refutes' claims
Babcock said on Monday that the report included “many false and malicious statements, which the group strongly refutes”.
The company – which has more than 128 contracts with the UK government, including services for the Ministry of Defence – added that it would continue to seek to find out who is behind Boatman Capital.
Shares rose 2.4% to 614p at noon.
READ: Babcock says trading is in line with expectations, outlook unchanged
A UK government spokesperson said: "We monitor the health of all of our strategic suppliers, including Babcock, and remain committed to working with them on a wide range of programmes.
“Babcock plays a key part in equipping our world-leading armed forces and the MOD spent more than £1.7bn with the company last year, supporting thousands of jobs across the nation."
Babcock repeats full year guidance
Babcock also reissued its September trading update, which maintained expectations for the year to 31 March 2019 and updated investors on the firm’s plan to exit a number of smaller low-margin businesses, including the Appledore shipyard, and to reorganise the oil and gas business.
The group reiterated that it has a "healthy financial position" with cash generation in line with expectations for the half year ended September 30.
It continues to expect it will reduce its debt for the year, with the net debt to EBITDA ratio estimated to reach 1.4 times by March 2019 and 1.1 times by March 2020.
Analyst questions why Babcock took a month to respond to allegations
Russ Mould, investment director at AJ Bell said: “While these comments partially addresses some of the criticism from Boatman, one has to question why it has taken Babcock nearly a month to go public on responding to the bear raid.
“Boatman’s research note was issued in October when Babcock traded at 672p; its shares have since fallen by 10% in value.
“There remain unanswered questions regarding Boatman’s allegations of cost overruns on several projects and potentially misleading margin forecasts in Babcock’s full year results in May. Plus there is the allegation that some of the senior leadership team are not fit for purpose."
Liberum maintained a 'buy' rating on Babcock, saying it believes the firm's "reassuring" update should have the desired effect of calming investors' nerves.
The broker also expects the additional £1bn per year for the Ministry of Defence announced in the Budget in October will be " marginally helpful" for Babcock.