We Lower Babcock’s FVE as U.K. Ministry of Defence Cuts Back on Submarine Programme Costs
We are decreasing our fair value estimate for narrow-moat Babcock to GBX 870 from GBX 960 per share for the London-listed shares, mainly to adjust for lower-than-expected infrastructure spend by the U.K.’s Ministry of Defence, affecting 2018 and 2019 revenue for the firm’s largest divisions, marine and land, which combined generate close to 80% of group revenue. Contrary to management expectations, we do not believe that U.K. defence cuts on submarine expenditures (close to GBP 100 million, repr...Babcock International Group is a holding company. Through its subsidiaries, Co. operates in four sectors: Marine, which provides an array of marine and naval engineering services; Land, which provides fleet management and training for customer-owned defense, emergency services, global airport and commercial vehicle fleets, as well as engineering services and technical training for customers worldwide; Aviation, which delivers an array of engineering services to defense and civil customers; and Cavendish Nuclear, which delivers nuclear engineering on nuclear decommissioning programs and projects across the U.K., as well as nuclear engineering services in training and operation support.
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