Babcock International Group PLC (LON:BAB) has been upgraded to ‘overweight’ from ‘neutral’ by analysts at Barclays as they forecast a recovery and turnaround at the defence group following “trough earnings” in 2021.
In a note on Tuesday, the bank also cut its target price to 347p from 419p as well as its 2021, 2022 and 2023 financial year earnings per share (EPS) forecasts by 7%.
READ: Babcock expects lower demand for short-cycle activities but long-term contracts continue as normal
Barclays also said the incoming chief executive David Lockwood will need to consider three key questions when he takes over on September 14, namely and adjustment of the company’s debt to equity mix and whether a backlog risk assessment will result in “material provisions/exceptional charges for completion of work on the Type 31 fixed price programme”.
The third key question, the bank said, will be whether Babcock can sustain its medium-term target of 11% group margin on its structural ‘reset’ from aviation services and “an increasingly output-focused UK [Ministry of Defence] customer”.
Shares in the firm jumped 8.6% to 309.9p in lunchtime trading.