MARKET REPORT: Babcock rocked by sell-off

MARKET REPORT: Babcock International rocked by brutal sell-off after it posts £1.6bn annual loss

Babcock International was rocked by a brutal sell-off after it posted a £1.6billion annual loss. 

The UK’s second-largest defence firm said it would need to write off £2billion from the value of the business as part of a drastic overhaul. 

This was far more than the £1.7billion it had indicated in April. 

In focus: The UK’s second-largest defence firm said it would need to write off £2billion from the value of the business as part of a drastic overhaul

Chief executive David Lockwood immediately rolled up his sleeves and got to work on a restructuring when he joined the company last year. This included carrying out an extensive review of how profitable contracts and recent acquisitions were. 

Babcock is a key contractor for the Ministry of Defence and is tasked with maintaining the UK’s fleet of nuclear submarines, operating the Devonport naval dock at Plymouth and training Royal Air Force pilots. Lockwood has already laid out plans to save £40m and cut 1,000 jobs, many of which will be from a bloated layer of middle management. 

Yesterday, in delayed results for the year to March, Babcock said it would aim to raise £400m by selling off different parts of the business. Lockwood also insisted that the company can be revived without needing to go cap in hand to shareholders – saying it can ‘do this without the need for equity’. 

Some brokers were encouraged, with Shore Capital analysts saying they expect Babcock to ’emerge in a year’s time on an ‘even keel’. They added: ‘Management are tackling the group’s structural issues head-on and we welcome business sales alongside restructuring to focus on the growth potential of the core.’ 

However, some may also be wondering if the company could become a takeover target if Lockwood turns it around – after his last two success stories Laird and Cobham were bought by Advent International. Shareholders, however, did not share the company’s optimistic tone. 

Babcock’s stock nosedived 16 per cent, or 48.8p, to 255.9p, making it not just the biggest faller on the FTSE250 but also on the entire FTSE All-Share index. Babcock dragged on the FTSE 250, which closed down 0.4 per cent, or 101.63 points, at 22948.83, while the FTSE100 also ended in the red, falling 0.7 per cent, or 46.12 points, to 7032.3. 

Intertek, one of the Footsie’s lesser-known companies, suffered on the back of a trading update, even though it reported a 23 per cent rise in profits to £186m. 

The company provides tests, and inspects and certifies goods in industries including chemicals, food, transport and construction. 

Shares tumbled 8 per cent, or 448p, to 5156p, as traders speculated that the City’s expectations for its progress had been too high. 

Also having a difficult end to the week, London-based asset manager Jupiter sank 6.6 per cent, or 19.2p, to 270.4p as clients withdrew their cash at such a rate that it posted net outflows of £2.3billion in the six months to June 30. And an upbeat statement from Glencore that it is set to announce another year of bumper profits from its trade business was met by little enthusiasm from investors, as it also lowered expectations for how much material it would produce from its mines. Shares fell 1.8 per cent, or 5.9p, to 323.55p. 

At the other end of the scale, property site Rightmove said estate agents had spent record fees advertising homes on its portal, rising 63 per cent to an average of £1,163 in the first six months of the year compared with the same period of 2020 and still higher than the £1,077 it hit in 2019 before the pandemic. Profits soared 86 per cent to £115m and revenues by 58 per cent to £150m as Britons rushed to complete on houses before the end of the stamp duty holiday. Shares rose 3.2 per cent, or 22p, to 702.2p. 

Deliveroo climbed after pulling out of Spain, where the competition for takeaway deliveries has grown fierce and the government has said workers in the gig economy must be considered employees. It finished up 1.5 per cent, or 5p, at 330p.