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UPDATE 1-Babcock benefits from government austerity
October 2, 2012 / 6:41 AM / 5 years ago

UPDATE 1-Babcock benefits from government austerity

LONDON, Oct 2 (Reuters) - British defence services group Babcock International delivered a strong first half performance as it continued to benefit from governments farming out more work to the private sector to cut costs.

“Trading across the group has continued to be positive during the first half of the 2012/13 financial year and we remain confident of meeting our expectations for this financial year and delivering strong progress on last year,” the firm said on Tuesday.

“Our businesses continue to experience buoyant market conditions, in both civil and military markets, as current and potential customers continue to seek increased efficiency and improved availability of assets.”

Babcock, which maintains British navy submarines, said its order book and bid pipeline were both stable at 13 billion pounds ($21 billion).

The company, which sold its U.S. defence services unit in May, said it had several large opportunities under bid, the majority of which it expects to be awarded over the next 18 months.

It added that it was tracking “significant defence equipment and training support opportunities”, which it expects to move into the bid pipeline over the next two years.

Babcock’s recent contract wins include the refit of Britain’s Vanguard submarines at its Devonport dockyard, power transmission in Scotland and estate management for West Yorkshire Police.

The company believes the current economic climate will continue to create “significant medium and long-term growth opportunities” both in the UK and overseas.

Jefferies analyst Kean Marden said the company was likely to benefit from “an acceleration in UK Ministry of Defence outsourcing momentum” and reiterated a ‘buy’ rating on the stock.

The group is expected to report an average pretax profit of 314 million pounds for the year to the end of March 2013, according to a Thomson Reuters I/B/E/S poll of 17 analysts.

Babcock said it had around 90 percent of its anticipated revenue for the current financial year contracted and over 50 percent for the following year.

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