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.”