By Pushkala Aripaka
Aug 4 – Shares in British engineering group Babcock slid as much as 16% on Tuesday after underlying profit slumped by two fifths in the first quarter, hit by higher costs resulting from the coronavirus-induced downturn.
While sales from the company’s core business grew slightly, it was not enough to offset writedowns in the oil and gas aviation unit, contract delays and the mounting cost of safety measures needed to contain the virus.
Babcock undertakes public and private contracts in the defence, emergency services and civil nuclear markets. It counts Britain’s Ministry of Defence as its biggest customer.
The company’s shares, which have halved in value this year, were down 11.8% at 254.7 pence by 0857 GMT. They earlier touched their lowest in about 14 years after Babcock said it would cancel the final dividend for its financial year ended March 31, having previously deferred the decision.
Chairwoman Ruth Cairnie said dividends would be reinstated as soon as possible.
“We continue to deliver critical programmes for our customers but our financial performance is being impacted by the challenges created by COVID-19 … We are not giving detailed financial guidance for the year at this stage,” she said.
Jefferies analysts cut their price target by 90 pence, saying Babcock’s 11% drop in organic growth was in line with its forecast, but the hit to profit was “more substantial”.
Fellow engineering firm Senior swung to a loss and shelved its interim dividend on Monday.
Babcock’s aviation business, which spans its three main operations, was hurt by fewer flying hours and weakness at the oil and gas aviation unit which transports workers to rigs. Defence, however, held up.
Peel Hunt analysts said they were keen to see how management, under a new chief executive and finance chief, would reshape Babcock’s battered operations. (Reporting by Pushkala Aripaka in Bengaluru; editing by Patrick Graham and Saumyadeb Chakrabarty and Kirsten Donovan)