Stock of the week: Babcock International
Engineering support services company, Babcock International, is our stock of the week this week following its recent promising trading update. The group said that trading was in line with expectations and it reiterated guidance for the year. Interested investors should note that all four sectors of the business were reported as making progress.
The firm provides outsourcing services to the government and private sector customers as well as working extensively with the UK armed forces. Babcock International has a diversified product base with a large international presence with businesses across Europe, Africa and North America. Furthermore, its international operations are expanding and have contracts in Norway, France and the latest in South Korea.
Investors should note there is the potential for the group to win further contracts in defence equipment and training support as the government is keen to outsource these services. Moreover, in the long-term there are growing hopes for more opportunities in the nuclear area.
Management is keen to highlight its links to the Navy, long-term contracts, new markets, potential for more outsourcing and a recovery in certain areas of defence spending. Also, the firm’s strong order book of around £19bn combined with the size of its projects with an average contract length of seven to eight years results in a higher level of visibility.
We therefore recommend the stock as a ‘buy’ for investors with a balanced portfolio and willing to accept a medium level of risk.