Babcock International Group PLC (LON: BAB) have seen their shares slip on Wednesday despite reporting strong profits gains in its interim results.
Babcock is a provider of engineering and technical services with supports national defense, safes lives and protects communities and have experienced a volatile financial 2019.
Shares of Babcock slipped 2.5% on Wednesday to 531p. 20/11/19 11:34BST.
The firm did report a sharp rise in profit for the first half of its financial year, but it seems that shareholders were not so convinced as share price fell.
The FTSE250 (INDEXFTSE: MCX) listed engineering firm saw falling revenue on step-downs from big projects reaching the end of their tenure.
For the six months to September, the firm reported pretax profit of £152.5 million, which was a huge rise from the £65.1 million figure a year ago.
However on an underlying basis the figure dropped by 18% to £202.5 million from £245.5 million.
Revenue meanwhile dropped by 2.7% to £2.19 billion from £2.25 billion the prior year, with underlying revenue also slipping by 4.7% to £2.46 billion from £2.58 billion.
Babcock said that the revenue dropped because of the step downs in its Queen Elizabeth Class aircraft carriers contract, which contributed heavily to the falling revenue figures.
Revenue declined on the ending of Babcock’s Magnox contract with the UK’s Nuclear Decommissioning Authority, as well as a one-off benefit of £90 million a year before in asset sales related to the group’s Fomdec contract in Aviation.
Statutory pretax profit benefited from the lack of exceptional charge of £120.4 million, which alluded to the restructuring of the oil and gas division.
“Today’s results show we are doing what we said we would do. Our delivery in the first half is in line with our expectations, with good performance across most of the group. In particular, strong performance from our Marine business has offset some weakness in the Aviation sector,” said Chief Executive Archie Bethel.
“If we exclude the step downs resulting from big projects like the aircraft carriers coming to an end, and from the impact of procuring planes last year for the French Fomedec contract, our underlying revenue grew by 3.6%. This momentum, combined with the second half phasing of margin and cash flow that we expect, means I am pleased to confirm that the full year guidance we gave in May remains unchanged,” Bethel added.
Although Babcock did report impressive gains, shareholders have been cautious as reflected by stock price movements this morning.
Where competitors such as Ultra Electronics (LON: ULE) and QinetiQ Group plc (LON: QQ) have reported strong trading updates, it seems that shareholders are demanding more from Babcock following the update.
The firm still has a long way to catch up to global titans such as Lockheed Martin (NYSE: LMT) or Boeing (NYSE: BA) who have experienced a strong trading year with continued demand.
