Market Report: Babcock backed as it 'sails ahead of pack'
Wednesday 15 May 2013
Punters were tallying up the lucrative order book at Babcock International as they piled in to the engineering group yesterday. The British engineering outsourcer, which started life in 1891 when a US boiler maker opened its first UK office, reported results ahead of expectations, with profits up 30 per cent.
Its house broker, Jefferies, thinks the consensus for future results are underestimating its "record bid pipeline". With even a 40 per cent success rate from its pipeline of potential contracts, it could double the current consensus sales growth forecasts.
John Lawson at Investec, who rates the shares add, reckons it is "sailing ahead of the pack" as it already has "70 per cent of the expected 2014 revenues already contracted".
It has paid down debts and pre-tax profits came in yesterday at £224.6m while sales were up 6 per cent to £3bn for the year to April.
The shares engineered a 74p gain to 1,163p – second place on the blue chip index.
Top of the tree was water company Severn Trent after it confirmed an approach from a consortium including Kuwaiti and Canadian investors.
The UK's water groups have been the subject of persistent takeover talk but Liberum Capital's analysts said the bid is "surprising" as the bidder will be taking on "considerable regulatory risk if they pay the sort of premium they are offering".
Analysts at HSBC might also be shocked at the news. Earlier this month, the broker issued a note that played down any hope of takeover of the utility stocks, and said any would-be suitors would "wait for visibility on Ofwat's approach to high leverage" in 2015 rather than bid now.
Severn took the top spot, up 252p to 2,077p. Other utilities groups were flowing, with United Utilities up 21p to 760.5p and Pennon 29.5p better off at 695p.
Excitement of M&A helped the FTSE 100 to its ninth day of gains – it added a huge 54.3 points to 6,686.06 – a fresh five- and-a-half year high.
A huge £2.1bn dividend pay-out to Vodafone got the City talking again about a deal with its American partner. The decision by Verizon Wireless to pay a total of $7bn (£5bn) to its co-owners Verizon, which holds 55 per cent, and Vodafone, which has the rest, comes after months of deal speculation.
The payout could be an "olive branch in an attempt to get a deal done", analysts at Liberum Capital said. They claimed that, although the market believed the dividend might have been "held back as a negotiation tactic", they think "a partial disposal" of Vodafone's stake in the joint venture could "be the compromise solution".
The dividend allays fears that Vodafone, which is at present the UK's highest dividend payer, may be unable to sustain its payouts.
Vodafone will announce details of what it will do with the cash at its results next week. Liberum rated the telecoms giant a buy with a 210p price target but the shares were unmoved at 193.5p.
Tui Travel's chief executive Peter Long sold 1.1 million shares but still holds more than 4.16 million and the holiday tour group declined 3.3p to 347.2p.
On the mid-tier table, strikes at South African miner Lonmin saw it tumble to the bottom, down 20.9p to 265.1p.
Is Betfair still in play? That's what some traders were asking yesterday. The online betting firm, which floated in October 2010 at 1,300p is no longer in talks with CVC Capital Partners, who had made a 950p a share bid. But it wasn't the price that led to the talks collapsing, apparently.
If so, Betfair could be willing to chat to other parties if they are willing to get to the 1,000p mark.
Who else might be interested? Other private equity? Ladbrokes? William Hill? For now the share price suggests investors aren't sure another bid will emerge – it lost 30p to 865p.
The distribution and support services group DCC reported sales up 25.3 per cent and it produced a 178p rise to 2,708p ahead of a move into the FTSE 250 later this year.
AIM tiddler Motive Television said it is developing a device to allow viewing of Freeview on a tablet computer in the UK and it edged up 9 per cent to 0.03p.
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