Babcock
International: They
just seem to be able to keep cranking out good numbers in a way that Serco and
G4S can only dream about. In last week’s interims to 30th September 2014,
they reported revenues and operating profit up an underlying 10%, with adjusted
eps up 11%. On the back of 115% cash conversion the dividend was raised by 10%,
with net debt to EBITDA at a post acquisition mini-peak of 2.3x. The £1.8bn Avincis
acquisition seems to be bedding in well and helped add £2bn of the £5n increase
in the order book, to £18.5bn. This means that 94% of next year’s targeted
revenue is booked and 59% for the year after. Beyond this firm order book is a
further £13.5bn in the bid pipeline, in what are described as ‘buoyant’ markets.
Of this pipeline 81% is described as ‘new bids’ with only 10% being rebids and
extensions.
They have earned the trust of Government and are now deeply
embedded in areas of defence and nuclear, from which it
would be difficult to dislodge them. At a time when other outsourcers have
proved unreliable (albeit in different disciplines), the contrast with Babcock’s
delivery record is stark. Avincis has been a decent bite to digest involving
debt issuance and a £1.08bn rights issue and the balance sheet is not quite at
peak fitness, but it is getting back there. Babcock has been showing the others
how to do it for many years now and the rating reflects this. For the year to
March 2015 consensus eps are about 67.5p, a PE of 17.6x at 1185p. A nearly
three times covered dividend of 22.8p would be a yield of 1.9%. So the stock is
not cheap, but holders are happy and those not on board will be waiting for
their chance. (Neil Cumming, 25th November 2014)
These comments are not a personal recommendation to deal. Any
investments can fall as well as rise in value, so you could get back less than
you invest. I may have a financial interest in some of the stocks written
about. www.dividendpower.co.uk
or e-mail at info@dividendpower.co.uk Twitter:
@DividendPower
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