Contract wins help lift Babcock order book to £13.5bn

The 123-year-old group, whose largest customer is Britain’s Ministry of Defence, said first-quarter trading was in line with its expectations and that its bid pipeline stood at £16bn.

The company said the completion of its acquisition of Avincis added £2bn to its order book, and that good progress had been made in the planned refinancing of the helicopter transport firm’s debt.

It is expected to post a pre-tax profit of £418.89m for the full year ending March 31.

CEO Peter Rogers said last week he was aiming for organic or self-generated earnings growth of up to 10 per cent.

Babcock has profited over the past few years as military and engineering clients, under pressure from tighter government budgets, outsourced work to cut costs.

The nature of contracts such as warship maintenance and refitting and nuclear decommissioning, which tend to be complex and long-term, has helped it steer clear of the scandals and close scrutiny that have hit some of its biggest outsourcing peers, including Serco and G4S.

“Babcock’s interim management statement reassures on several fronts,” said analysts at brokerage Jefferies, who have a ‘buy’ rating on the stock.

“Activity levels remain high, key markets remain positive, 2015 full-year trading is expected to be in line with expectations despite recent FX (foreign exchange) movements and integration of Avincis is progressing well,” they added.

Analyst John Lawson at Investec said: “The message from Babcock remains consistent and we believe that the stock has been oversold, so we maintain our ‘buy’ and reiterate our 1377p sum of the parts-based target price.

“The order book remains robust, which gives the group good forward earnings visibility for 2015, and the pipeline remains encouraging (despite not winning/retaining the defence estates work).

“The Avincis acquisition is on track and good progress is being made in refinancing the debt within this business.”