Babcock has £150m to spend

Babcock is set for a period of acquisitive growth after revealing a £150m war chest last week. Speaking after reporting an 8.2% rise in pre-tax profits for the six months to the end of September, chief executive Dr John Parker said bolt-on deals were likely in both the UK and US. He would not rule […]

Babcock is set for a period of acquisitive growth after revealing a £150m war chest last week.

Speaking after reporting an 8.2% rise in pre-tax profits for the six months to the end of September, chief executive Dr John Parker said bolt-on deals were likely in both the UK and US. He would not rule out a big acquisition if the right opportunity was identified.

`We would not be prepared to overpay unless the deal was of the utmost strategic importance,’ he said, adding that prices being asked for businesses were already too high.

Babcock’s profit for the period was £11.9m after £2.2m of exceptional redundancy costs at Railcare, its rail joint-venture.

Babcock has net cash of £69m but could afford to go up to £150m for the right deal, Parker said.

He added that after extensive restructuring Babcock was in good shape, but admitted this was not yet reflected in the share price. Despite outperforming the sector average over the past year, Babcock still trades on a lowly rating of 9.2 times prospective earnings.

`We have transformed the risk profile of the business and 50% of our operations are support services, but the rating still reflects our roots,’ he said.

Parker ruled out a share buy-back since the company is still aiming to grow. `We have better things to do with our money, such as make acquisitions,’ he added.

Babcock is well positioned to win new work abroad, Parker believes, particularly in Far East markets, which are already showing signs of recovery.

The group’s order book looks healthy and stood at £382.3m at the half year, compared with £353.2m at March’s full-year figures.