Engineering services firm and defence contractor Babcock (BAB) fell 17.3% to 218p as alongside a downbeat trading update the company announced a review of contract profitability and the balance sheet – expected to have negative impacts.

Underlying profit fell by more than a third in nine months to date as performance in the third quarter was hurt by ongoing weakness in its civil aviation businesses and the pandemic impact.

The company said early indications from the accounting review flagged negative financial impacts for the current and future years. Full details are expected alongside full year results in May.

In 2018 and 2019 the rather shadowy Boatman Capital Research mounted a sustained campaign against Babcock’s management and its corporate structure which it called ‘opaque, needlessly complex, needlessly expensive and prone to errors’ and alleged over-valuation of contracts.

Underlying operating profit in the nine months year-to-date was £202 million, down 34% from £320 million, amid a negative impact from civil nuclear insourcing, Covid-19 and civil aviation, the company said.

Underlying revenue fell 3% to £3.4 billion. Order intake year-to-date was £3.1 billion with the group's order book standing at £16.8 billion at 31 December 2020, down from £17.6 billion seen at 31 March 2020.  Net debt was down £255 million year-on-year at £1.21 billion.

Looking ahead, the company refrained from providing guidance amid ongoing uncertainty. Shore Capital analyst Robin Speakman said: ‘Whilst the trading picture and long-term outlook for Babcock appear as expected, immediate news flow remains challenging.’

Speakman also noted ‘a negative immediate outlook for the balance sheet and profitability from the accounting review’.

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Issue Date: 15 Jan 2021