Babcock International Group Plc

Babcock International Group Plc (BAB) is a London, the United Kingdom-based group, which provides the engineering support services for armies, navies and air forces. It offers naval support services, technical services, testing, assembly, consultancy and training for the marine sector. The company provides vehicle fleet management services, equipment supports and technical training for military and civil customers.

Recent News
On 12th September 2019, Babcock International Group announced that they had been selected as preferred bidder by the UK Ministry of Defence. The company had been chosen to deliver its new fleet of warships.

Financial Highlights – Financial Year 2019 (£, million)

(Source: Annual Report, Company Website)
 
For the financial year ending 31^st March 2019, the company’s underlying revenue decreased by 3.8 per cent to £5.2 billion as compared with the financial year 2018 of £5.4 billion, driven by the disposals and exits and decline in the short cycle parts of the business, while performance over long term contracts remained solid. Underlying operating profit surged by 0.7 per cent to £588.4 million against the £584.6 million in FY18. Increase in the margin was due to an increased Joint Venture contribution, the exit of low margin businesses and good contract performance. Underlying profit before tax surged by 1.1 per cent to £517.9 million as compared to £512.5 million in FY18. Underlying basic earnings per share climbed by 1.2 per cent to 84 pence as compared with previous year data. Underlying operating cash flow stood at £617.8 million. Free cash flow (pension payments) increased by 29.4 per cent to £323.7 million as compared to the prior year data. Net debt was at £957.7 million, a decrease of £157 million against the £1,115 million in FY18. Net Debt to EBITDA stood at 1.4x. Full year dividend per share surged by 1.7 per cent to 30 pence as compared with the financial year 2018 of 29.5 pence, due to the confidence in the prospects of the company and sustained cash generation.

Share Price Performance

Daily Chart as at 13^th September 19, before the market close (Source: Thomson Reuters)

On 13^th September 2019, Babcock International Group Plc shares were trading at GBX 561.60 at the time of writing before the market close (at 12:20 PM GMT) and up by 3.31 against the previous day closing price. Stock's 52 weeks High and Low are GBX 733.80/GBX 410.10. The group’s stock is reflecting higher volatility as against the benchmark index based on the company’s beta of 1.19.

Valuation Methodology                          

*Peers: Sureserve Group Plc, Mears Group Plc, Mitie Group Plc and Biffa Plc

Conclusion
The company had shown decent growth in the financial performance for the financial year 2019. On the underlying basis, although the company’s revenue had declined, the profitability had improved for the period.

The group is well placed to maximise opportunities and manage the challenges through improved programme execution and maintaining the strategy and capital allocation policy.

In FY2020, the company’s underlying operating profit will be in the range of £515-535 million. In the future, environmental regulations, foreign exchange risks and expansion by competitors could affect its business operations.

Based on the decent fundamentals and the valuation done using the above method, we have given a “Hold” recommendation at the closing price of GBX 543.60 (as on 12th September 2019), based on 7.70x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.). 
 

Workspace Group Plc

Workspace Group PLC (WKP) is a London, United Kingdom-based real estate investment trust which offers flexible office, co-working and meeting room solutions in London. The company owns more than 4 million square feet of office, studio and industrial space, which it lets to all businesses at any stage of their life cycle on flexible lease terms. WKP is listed on the LSE (London Stock Exchange) and is a constituent of the FTSE 250 index.

Recent News
On 12th September 2019, Workspace Group announced the disposal of Alexandra House, Shoreditch and Vestry Street Studios for £34.75 million combined. The combined value is at a premium of 20 per cent to the valuations done on 31st March 2019.

Business Update
In the first quarter of the financial year 2020, the company reported that letting averaged 121 per month (Q1 2018/19: 88) and enquiries were 1,060 per month (Q1 2018/19: 1,021), reflecting a good level of customer demand. Based on the 31 March 2019 property valuation, the pro forma loan-to-value ratio at 30 June 2019 was 22 per cent, remaining the same in comparison to last year. Cash balances and undrawn facilities were £134 million at the end of the period and net debt during the quarter was reduced by £6 million to £574 million.

Financial Highlights – Financial Year 2019 (£, million)

(Source: Annual Report, Company Website)
 
For the financial year ending 31st March 2019, the company’s Net rental income was up by 16 per cent in the year to £111 million as against £95.6 million in FY2018. The trading profit after interest for the year was up 19 per cent to £72.4 million in FY2019 versus £60.7 million in FY2018. As a result of a lower uplift in the property valuation and lower disposal profits, profit before tax for the year reduced by 19 per cent to £137.3 million and diluted earnings per share was 77 pence as compared to 104 pence in FY 2018. This was as a result of an increase in total administration costs, which were up 6.2 per cent in the year to £17.1 million, and net finance costs, which was increased by 14.4 per cent in the year 2019. However, adjusted underlying earnings per share rose to 40.6 pence, against 36.8 pence in FY 2018 over the full year.  Reflecting the strong financial performance and positive outlook, the company increased the total dividend by 20 per cent to 32.87 pence.

Share Price Performance

Daily Chart as at 13^th September 19, before the market close (Source: Thomson Reuters)

On 13^th September 2019, Workspace Group Plc shares were trading at GBX 940.00 at the time of writing before the market close (at 12:42 PM GMT) and up by 0.64 against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,068.00/GBX 778.00. The group’s stock is reflecting the same volatility as against the benchmark index based on the company’s beta of 1.01.

Valuation Methodology


Conclusion
The company believes that the opportunity continues to be extremely attractive as a focus on the flexible space market is growing. The company can successfully drive income and capital growth from its properties as it holds its assets for the long term and is wholly owned by it. The company is able to attract strong demand from a broad range of customers due to the distinctive flexible offer it provides to clients. The company faces the risk that the value of its properties may decline as a result of external market conditions, which the company cannot influence. The company is also facing political uncertainty, which might impact the overall business activity and consequently, the demand for the company’s product.

Keeping in mind the decent prospects of the company, and supported by valuation done using the above method, we have given a “Hold” recommendation at the closing price of GBX 934.00 (as on 12 September 2019), based on 21.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.