Babcock International Group Plc

Babcock International Group Plc (LON: BAB) is a leading Aerospace and Defense company, which provides the engineering support services for armies, navies and air forces.

Trading Update (9 months period of the financial year)
On 12^th February 2020, Babcock International Group released an update for nine months trading period. The company revised its guidance for underlying operating profit to GBP 540 million (approximately) from previous guidance of ranging between GBP 540 million to GBP 560 million. The guidance for underlying revenue, free cash flow and net debt remained unchanged. The company has been implementing restructuringand improvementprogrammesin its Aviation Business to remained on track to delivermedium-termgrowth. The company’s oil and gas businessfaced challenges in Southern Europemarket for the period. The company’s Marine business is performing well with exceededexpectations. The company witnessed strong growth in revenue, driven by high growthfrom technology businessesand warship support activityin Australia and the UK. The demand for complex liquid gas transportation systemsstood higher than the company’s expectations.In Nuclear business, the growthin revenuefrom the UK defencestood in line with the expectations and the company is progressing well to integrate its nuclear engineering businesses. The civil nuclear market remained quite for the period. Driven by increased defence revenuesand strong trading in the South African region, the company witnessed underlying revenue growthfrom its land business.

Share Price Performance

Daily Chart as of February 12^th, 2020, before the market close (Source: Thomson Reuters)

Babcock International Group Plc shares were trading at GBX 533.90 at the time of writing before the market close (at 11:32 AM GMT) on 12^th February 2020 and were down by 4.04% versus the previous day closing price. Stock's 52 weeks High is GBX 659.80 and Low is GBX 410.10. The shares of the company have delivered a negative return of 16.48 per cent in the last month.

Valuation Methodology
 

Conclusion
The company expect underlying revenue to be around GBP 4.9 billion. The company revised its guidance for underlying operating profit, and it had been declined to GBP 540 million. In the near term, the company is expecting an increase in Marine and Land sectors performance but with some weakness in the Aviation sector growth. The company witnessed a delay in the awards of new contracts due to which the revenue had been pushed to the future period. The civil nuclear market remained quiet, and oil and gasremained a tough marketfor the company.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the closing price of GBX 556.40 (as on 11^th February 2020), while we look for any upcoming catalysts in the near term.
 

Primary Health Properties Plc
 

Primary Health Properties PLC (LON: PHP) is a London-based UK Real Estate Investment Trust. The company is a leading investor in modern primary healthcare premises and has a portfolio comprising over 480 primary healthcare facilities.
 
Financial Highlights – Financial Year 2019 (31^st December 2019, GBP, million)

(Source: Annual Report, Company Website)
 
For the financial year ending 31^st December 2019, driven by an increase in the rental income for the period, the company’s net rental income increased to GBP 115.7 million from GBP 76.4 million in FY2018. Due to an increase in the operating expenses, the company’s operating profit declined to GBP 4.6 million in FY2019 versus GBP 102.6 million in FY2018. The reported LBT (loss before tax) stood at GBP 70.2 million in the financial year 2019 versus a PBT (profit before tax) of GBP 74.3 million in FY2018. The reported LAT (loss after tax) stood at GBP 71.3 million in the financial year 2019 versus a PAT (profit after tax) of GBP 74.3 million in FY2018. The company’s basic loss per share stood at 6.5 pence in FY2019 versus basic earnings per share of 10.5 pence in FY2018. The company’s diluted loss per share stood at 6.5 pence in FY2019 versus diluted earnings per share of 9.8 pence in FY2018. Adjusted EPRA earnings per share stood at 5.5 pence in FY19. The interim dividend per share increased by 3.7% to 5.6 pence against the previous year (FY18: 5.4 pence).

Share Price Performance

Daily Chart as of February 12^th, 2020, before the market close (Source: Thomson Reuters)

Primary Health Properties Plc shares were trading at GBX 162.12 at the time of writing before the market close (at 12:09 PM GMT) on 12^th February 2020 and were up by 0.32% versus the previous day closing price. Stock's 52 weeks High is GBX 163.40 and Low is GBX 115.13. The shares of the company have delivered a positive return of 2.87 per cent in the last month.

Valuation Methodology


Conclusion
The company has a high-quality portfolio and capital base, which is supported by a strong balance sheet. The company's strategy of paying a progressive dividend to shareholders which are fully covered by earnings is expected to be maintained by further reductions in the cost of finance and continuing improvements to the rental growth outlook. However, the company faces some serious external risk, not least from uncertainty regarding Brexit. The company expects to be affected by a potential negative impact on the macro-economic environment. It can also impact the company's ability to execute investment strategy and investment & occupier market. Also, as the company has assets in Ireland as well, the company is facing increased foreign exchange risk from volatility while the exit process is ongoing. Unfavourable movement in interest rates could impact property valuation and adversely affect the company's earnings.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the current price of GBX 162.60 (as on 12^th February 2020, before the market close at 12:08 PM GMT), while we look for any upcoming catalysts in the near term.
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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