Monthly Archives: March 2016

Expert in Investment: what does it mean?

Mark Jeffries, Chairman of NW Brown Group Limited, questions Marcus Johnson, Chief Executive, on NW Brown’s investment approach.


Stocks in Focus: Babcock International

This week, the Ministry of Defence has awarded a £372million contract to three companies to maintain the UK’s fleet of RAF and Royal Navy Hawk jet training aircrafts. One of these three companies is Babcock International, the subject of this week’s article. Babcock is the UK’s leading engineering support services company, delivering complex and critical bespoke support to the defence, emergency services, energy, oil & gas, transport and education sectors. Customers tend to be government departments, public bodies, regulated industries or blue chip companies operating in highly regulated environments that own or utilise large, strategically important assets or infrastructure.

Whilst it is expanding internationally and in other areas, the majority of Babcock’s business comes from the UK defence and civil sectors.  In particular, Ministry of Defence contracts account for a large percentage of group sales and to this extent it is a concern for the company that spending on defence has fallen in both absolute terms and as a percentage of GDP over the last decade. Having said this, public support for defence spending remains robust and targeted spending focuses on Babcock’s key defence and marine capabilities.

From an investment perspective, the shares are trading nearly 30% below their February 2014 peak on the back of uncertainty regarding its 2014 acquisition of Avincis (a helicopter business that the business may have paid too much for in hindsight), political uncertainty and the defence budget austerity mentioned above. These concerns may yet depress the shares further, but on the plus side the business has unique expertise and boasts an impressive order book and pipeline that should underpin future earnings.