Babcock International Group PLC (LON:BAB) continued to hold fire on a dividend at the half-year stage as the defence contractor's underlying profits fell 42%.
Trading across most of the defence and emergency services businesses held up well throughout the coronavirus pandemic though there was reduced efficiency, the company said, while in the defence training business initial reduced activity returned, but the airports businesses saw a dramatic reduction in volumes given the global decline in passenger numbers and a Heathrow airport baggage contract came to an end in October.
The FTSE 250-listed group cited the “continued uncertainty around the impact of COVID-19” as the reason for its continued eschewing of a shareholder returns, a cease-fire on the payout at its August final results, while it is worth noting that the majority of its civil training employees placed on the UK government's furlough scheme earlier in the year.
Chief executive David Lockwood said: “While demand for our critical services has remained resilient overall, the additional costs incurred and inefficiencies created have impacted our profitability. Our operating profit performance in the first half reflects this COVID-19 impact as well as disposals, the impact of government insourcing of Magnox and Dounreay, and weak trading in civil aviation.”
Revenue in the six months to end-September 2020 of £2.1bn was down 4% and underlying operating profits of £143.1mln were down from £250.6mln a year ago.
The order book decreased to circa £17bn from the year-end level of £18bn, but the pipeline has remained stable at £17bn. Net debt fell to £871mln from £922mln six months earlier.
The shares fell 5% to 336.26p on Wednesday morning, down 47% since the start of the year.
Broker Liberum said the results in line with expectations and added that the UK Ministry of Defence’s recent spending plan from the government "provides a bigger budget with more predictability".
But JPMorgan Cazenove upped its target price to 405p from 308p.