Babcock is told to shed three losers

Weak links are spotted in diverse conglomerate’s operations

Babcock International, the diverse engineering concern, is being advised to shed three of its unprofitable businesses.

Stockbroker Panmure Gordon sees little hope of the three businesses – process, environmental (Caldwell), and the Africa division – finding buyers while they trade in the red.

Nick Salmon, Babcock chief executive, concedes that the company is looking at what to do with the loss makers. `There are various options, but nothing is decided,’ he said.

Group profits at the halfway stage fell (post exceptionals) by 75% to £4.68m, and the dividend was sharply cut. Shares have veered wildly from a high of 145p to a low of 45p. They are now in the 60p-65p range.

For the full year, Panmure forecasts £7.8m (against £3.1m) and total dividends of 1.9p (against 3p).

The broker expects strong performances from the two core businesses, materials handling and facilities management. It sees the crux problem in the process division as lack of proprietary technology and forecasts a loss of £4m this year. Babcock should either grow the business via joint ventures or exit from the market.

Caldwell, which reprocesses industrial dust into saleable products, is seen as a drain on profits and cash and Panmure believes Babcock is ready to quit the venture. Caldwell is forecast to lose £4m this year.

Panmure pencils in a loss of £2.5m for Africa – `a disaster area’- and is sceptical that the business, concerned mainly with the repair and maintenance of energy plant, can be sold to Mitsui, which brought the energy arm from Babcock last year.

The `jewel’ in Babcock’s crown, materials handling, has recovered from a sharp setback and looks good for £4m profits this time.

Facilities management, the main moneyspinner, will benefit from the addition of Rosyth Dock, acquired last December for a `bargain’ net £20.5m. For this year, Panmure forecasts profits of £14.8m from the business, rising to at least £15.5m next year.

For the group as a whole it has downgraded its pre-tax 1997-98 estimate by £3m to £15m because of uncertainties over the future of the loss-making businesses.