Where there’s smoke there’s fire, the saying goes, and investors did not hang about for any confirmation from Babcock International (BAB) after rumours emerged of a big asset write-down incoming.
Shares in the engineering services and defence firm tanked nearly 7% on Friday to 222.35p after a report in the Financial Times warned that the company was preparing to make wholesale asset write-downs, possibly worth up to £700 million.
NEW YEAR WARNING
The FTSE 250 business warned in January that a review of its balance sheet could lead to ‘negative financial impacts’ for the current year and deeper into the future. New chief executive David Lockwood had promised to update the market with the results of a strategic review alongside the company’s full-year results in May.
However, the FT referred to two people familiar with the situation that an update on Babcock’s balance sheet and contract profitability could be made earlier. Hints of an update over the coming days could even be moved forward to later today to give investors a clearer picture with the rumour mill in full swing.
TRADING CHALLENGES
In January, Babcock reported a 3% decline in underlying revenue to £3.4 billion. Order intake at the time was £3.1 billion with the group's order book standing at £16.8 billion at 31 December 2020. That was down from the £17.6 billion seen at 31 March 2020. Net debt was down £255 million year-on-year at £1.21 billion.
Babcock stock has been in steep decline for nearly seven years after a strong initial recovery from 2008’s global financial crisis saw the shares peak at £12.65. The stock’s all-time high was around £14.45 in 1992.
