MARKET REPORT: Babcock startled by sales

MARKET REPORT: Babcock International rocked by brutal sell-off after posting annual loss of £1.6bn

Babcock International was rocked by a brutal sell-off after it posted an annual loss of £1.6 billion.

The UK’s second-largest defense company said it would have to write off £2bn from the company’s value as part of a drastic overhaul.

This was far more than the £1.7bn it had declared in April.

In focus: UK’s second-largest defense company said it would have to write off £2bn from the company’s value as part of a drastic overhaul

Chief executive David Lockwood immediately rolled up his sleeves and started restructuring last year. This included conducting a comprehensive assessment of the profitability of contracts and recent acquisitions.

A prime contractor for the Ministry of Defense, Babcock is charged with maintaining the British fleet of nuclear submarines, operating the Devonport naval dock in Plymouth and training Royal Air Force pilots. Lockwood has already drawn up plans to save £40m and cut 1,000 jobs, many of which will come from inflated low-middle management.

Yesterday, in delayed results for the year to March, Babcock said it would aim to raise £400m by selling various parts of the company. Lockwood also insisted that the company can be revived without having to pay shareholders – saying it can “do this without the need for equity capital.”

Some brokers were encouraged, with analysts at Shore Capital saying they expect Babcock “to emerge with an “even keel” in a year. They added: “Management is directly addressing the group’s structural issues and we welcome corporate sales alongside restructuring to focus on core growth potential.”

However, some may also wonder if the company could become a takeover target if Lockwood turns it around — after his last two success stories Laird and Cobham were bought by Advent International. Shareholders, however, did not share the company’s optimistic tone.

Babcock’s stock fell 16 percent, or 48.8p, to 255.9p, making it the biggest faller not only on the FTSE250, but also on the entire FTSE All-Share Index. Babcock dragged on the FTSE 250, which closed 0.4 percent or 101.63 points at 22948.83, while the FTSE100 also finished in the red, falling 0.7 percent or 46.12 points to 7032.3.

Intertek, one of Footsie’s lesser-known companies, suffered a trade update, although it reported a 23 percent increase in profits to £186 million.

The company conducts tests, inspects and certifies goods in the chemical, food, transport and construction sectors, among others.

Shares fell 8 percent, or 448p, to 5156p, as traders speculated that the city’s expectations for progress had been too high.

London-based asset manager Jupiter also had a rough end to the week, dropping 6.6 percent or 19.2p to 270.4p as clients withdrew their cash at such a pace that it saw a net outflow of £2.3 billion in the six months to June 30. And an optimistic statement from Glencore that it will herald another year of huge profits from its trading business has met with little enthusiasm from investors, as it also lowered expectations for how much material it would produce from its mines. The stock fell 1.8 percent, or 5.9p, to 323.55p.

At the other end of the scale, property site Rightmove said estate agents had spent record prices on advertising homes on its portal, up 63 percent to an average of £1,163 in the first six months of the year compared to the same period of 2020 and still higher than the £1,077 it hit in 2019 before the pandemic. Profits rose 86 per cent to £115 million and revenues 58 per cent to £150 million as Britons rushed to complete houses before the stamp duty holiday ends. Shares were up 3.2 percent, or 22p, to 702.2p.

Deliveroo climbed after the withdrawal from Spain, where competition for takeaway meals has grown fiercely and the government has said workers in the gig economy should be considered workers. It finished 1.5 percent, or 5p, at 330p.