Babcock shares drop on profits fall and weaker nuclear outlook

Engineering group Babcock International has revealed a 64% plunge in half-year profits after charges linked to its overhaul and it warned over nuclear decommissioning revenues.

Shares fell as much as 12% after the group – the Ministry of Defence’s second largest contractor – reported pre-tax profits falling to £65.1 million in the six months to September 30, down from £181.9 million a year earlier.

Profits were pushed lower by a £120 million charge related to the restructuring of its oil and gas business and also including costs such as its decision to sell the Appledore shipyard in Devon.

On an underlying basis, Babcock posted a 2.5% rise in pre-tax profits to £245.5 million.

Babcock stuck to its guidance for the full year, with “low single digit” growth in underlying organic revenues expected and improved profit margins.

But the firm worried investors as it cut its 2019-20 guidance for revenue from its joint venture for decommissioning of Magnox nuclear sites in the UK.

The contract is due to end in August 2019 and Babcock does not now expect any additional revenue after that date.

This means the “step down” in revenues is set to be greater than first thought, at £250 million in 2019-20 against previous forecasts for £100 million, with an associated £20 million hit to its operating profit.

Chief executive Archie Bethel said: “We are taking decisive actions to further strengthen the group, which will deliver benefits next year and beyond.”

The results follow a torrid time for Babcock shares, which have been sent tumbling after a highly critical research paper posted last month by a mystery analyst called Boatman Capital.

Babcock last week hit out at the report, alleging the claims made by Boatman were “false and malicious”, and moved to assure over its financial health.

The Boatman report alleged Babcock has a “terrible” relationship with the MoD, while it also claimed Babcock has “systematically misled investors by burying bad news about its performance”.

It also launched a scathing and personal attack on Babcock’s bosses – chairman and defence industry veteran Mike Turner, and Mr Bethel – claiming they are “not up to the job”.

Babcock said last week it “strongly refutes” the claims made in the report by the “anonymous and so far untraceable” Boatman.

Analysts at Liberum said the first-half results were in line with expectations, though they trimmed their 2019-20 forecasts on the worse-than-expected nuclear outlook.

They also dismissed the Boatman claims.

“We have performed a thorough review of Babcock’s accounting and believe that concerns are overdone,” they said.