FTSE 250 stocks: Babcock International’s share price soars 33%! Here’s why

Babcock International’s share price has exploded as it announced huge restructuring. These are the key points of the FTSE 250 firm’s freshest update.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investor appetite for FTSE 250 shares remains pretty flat on Tuesday. Market makers have paused for breath after sweeping the index to record highs above 22,250 points last week. The soaring Babcock International (LSE: BAB) share price shows that demand for UK shares hasn’t gone into total hibernation, however.

Babcock International rocketed to its highest for more than four months earlier today at 325p per share. The UK defence share has pared some of these gains but, at 321p, it remains 33% higher from Monday’s close.

Babcock books £1.7bn charge

Babcock International’s share price has ballooned as the company announced massive restructuring following a better-than-expected review.

The standout news is that Babcock International expects to swallow £1.7bn worth of impairments and charges due to recent difficulties. The business said the “vast majority” of the impact of its recent balance sheet and profitability review “is one-off in nature and non-cash affecting.”

Babcock launched its review in January in response to the Covid-19 crisis which smashed profits in the first half of its fiscal year.

These recent difficulties means Babcock has decided to take a scalpel to its operations “to simplify the business and reduce layers.” Planned restructuring will cost the company £40m but will result in annualised savings of £40m, the FTSE 250 firm said. The programme will see the business reduce its 30,000-strong headcount by around 1,000 over the next year.

A FTSE 250 firm in recovery?

Babcock said that it will now focus on being “an international aerospace, defence and security company with a leading naval business and providing value add services across the UK, France, Canada, Australia and South Africa.”

This means it will embark on a raft of divestments which the firm hopes will generate proceeds “of at least £400m” over the next 12 months.

The FTSE 250 company added that “we have confidence that the markets we address and our capabilities to address those markets will be favourable in the medium term.” But it said it expected to revise profits forecasts as it continues to review operations.

Babcock said that it’s “cautious” over profitability for the upcoming financial year (to March 2022) as it described the period as “a year of transition.” But it added that its restructuring efforts would pull underlying operating profit around £30m lower each year.

Net debt at Babcock clocked in at around £750m as of 31 March, the company said. For the full 12-month financial period, underlying operating profit (before the impact of its recent review) slumped 41% year-on-year to £307m.

Chief executive David Lockwood commented that “through self-help actions, we aim to return Babcock to strength without the need for an equity issue”. He said it’s creating a more effective and efficient company through its new operating model and, “in line with our new strategic direction, will rationalise the group’s portfolio to help strengthen our balance sheet.”

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »