Shares of Babcock Hit by Concerns on Spending Cuts on UK Defence

Today, investors of Babcock, scurried for cover as the engineering outsourcer warned that spending reviews on UK defence could affect revenue growth.

Three-quarters of the revenue of Babcock comes from Britain and shares have dropped by twenty (20) percent over the past six (6) months. Yesterday, they declined by over five percent, despite the report of Babcock’s first-half earnings that were in line with the company’s expectations.

Underlying pre-tax profit grew by 4.9 percent to £239.5m in the six months to the end of September. Its revenue was 5.9 percent higher at £2.64bn.

Christopher Bamberry, the Peel Hunt analyst, said that the recent share price drop reflected “investor concerns regarding pressures on the funding of UK defence programmes [and] the issues at other companies in the outsourcing sub-sector.”

Bamberry also said that Brexit-fuelled political uncertainty was weighing on the shares of the firm.

Archie Bethel, the Babcock boss, stated: “The increasing number and value of our opportunities both in the UK and internationally, where we continue to gain traction, highlights Babcock’s long-proven ability to grow despite uncertain market conditions.

“Our focus on technology-intensive critical services where barriers to entry are high has consistently enabled us to generate sustainable growth regardless of any decline in spending on original equipment. I expect this to remain a key element of differentiation for Babcock in the coming months and years.”