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UPDATE 1-Babcock on track to meet core earnings growth targets
November 20, 2014 / 10:28 AM / in 3 years

UPDATE 1-Babcock on track to meet core earnings growth targets

(Adds CEO comments, shares, details, analyst comments)

By Li-mei Hoang

LONDON, Nov 20 (Reuters) - British engineering firm Babcock said on Thursday strong demand for niche services helped core earnings growth improve to 9 percent in the first half of the year, after posting a 32 percent jump in pretax profits.

Chief Executive Peter Rogers said in July the company, which generates 81 percent of its business in Britain and whose largest customer is the Ministry of Defence, was aiming for 10 percent core earnings growth in the coming years.

Rogers, who has been in the role for 11 years, told Reuters core, or organic, earnings growth in the first half had risen from the 6-8 percent seen in recent years.

“We have found a niche in the market, which is very robust,” he said.

The defence, support services and engineering contractor has profited over the past year as military and engineering clients, under pressure from tighter government budgets, have outsourced work to cut costs.

Babcock repairs and maintains Britain’s submarines and on Wednesday said it was the preferred bidder for the sale of the Ministry of Defence’s business that repairs and maintains equipment for land forces.

The 123-year-old company reaffirmed its full-year profit forecast after underlying pretax profit for the six months to Sept. 30 jumped to 187 million pounds ($292.5 million) from 141.7 million.

Shares in the company were up 4.6 percent at 11 pence by GMT, making it the biggest gainer on the FTSE 100 index.

“Babcock reported a very solid first half performance,” said Investec analyst John Lawson.

“The group continues to successfully replenish its order book and yesterday’s announcement with regards to the Defence Support Group was very timely. A very robust story and we maintain our ‘Buy’ rating,” he said.

Babcock is expected to report full-year pretax profits of 412.32 million, according to the average estimate in a Thomson Reuters poll of nine analysts.

Rogers said he expected to see a further 20 percent growth in profits in the second half at its recent acquisition, helicopter transport firm Avincis.

Babcock raised its interim dividend by 10 percent to 5.5 pence and said its order book had increased sharply to 18.5 billion pounds.

1 US dollar = 0.6392 British pound Reporting by Li-mei Hoang; editing by David Clarke

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