The aggressive short-seller published a previous note on Babcock back in November, accusing the defence contractor of “burying bad news” and claiming its board is “not up to the job”.
Boatman said today it was following up on its earlier accusations ahead of the company’s full-year results next week.
Among a slew of issues, the anonymous analyst(s) believes Babcock has overestimated its Defence Support Group subsidiary’s biggest contract by as much £75mln – equivalent to almost 20% of last year’s profits.
It has also called on bosses to simplify the company’s “unnecessarily complex” structure and ditch the “accounting tricks and obfuscations” which, it says, contributes to a “distrust” of its finances.
New chair needs to ‘refresh her board’
Boatman repeated its concerns about Babcock’s relationship with the UK government, pointing out that a number of other contractors, including BAE and Airbus, had several meetings with MoD ministers last year, whilst Babcock had one in January, and then none for six months.
The report did praise the company for one thing, though: the appointment of Ruth Cairnie as the new chairwoman.
“We welcome this move and believe that Ms Cairnie will be in a position to rebuild bridges with the MoD,” read the note.
“Ms Cairnie needs to overhaul her executive team and find a new CEO and CFO. She needs to refresh her board, starting with Sir David Omand – the senior independent director who is also no longer independent under the UK Corporate Governance Code (he has been a board member for ten years).”
Babcock refutes ‘inaccurate and misleading’ allegations
Unsurprisingly, Babcock has hit back at the lengthy report. In a press release, it refuted the “inaccurate and misleading” accusations, as it sought to reassure the market over the performance of its DSG subsidiary and its relationship with the UK government.
“Our DSG business is performing to financial expectations and we continue to see opportunities for growth,” said Babcock.
“We have regularly updated the market on progress and can confirm that we do not intend to make any impairment in regard to DSG.”
As for its current relationship with the MoD, the company added: “As announced to the market, we signed a Joint Ways of Working Charter with the Cabinet Office and Ministry of Defence in November, which reflects our joint cooperative approach on an enduring and consistent basis.”
It went on to say that the response to Boatman’s second report had been “issued in consultation with the MoD”.
Babcock shares edged 1% higher to 524p shortly before the market close in London, having been in the red for most of the day.