Share hunter: The strength of engineering support company Babcock

TRACING its roots back to a boiler manufacturer in 1891 Babcock today is a highly diverse engineering support services company whose areas of operation include defence, energy, transport and education.

Richard Hunter recommends engineering support company BabcockBabcock is split into four divisions [IG ]

The FTSE 100 group is split into four divisions. Marine and technology supplies engineering services such as nuclear and naval to the likes of the Royal Navy and the Ministry of Defence. 

Defence and security provides infrastructure, equipment support and military training to the Royal Navy, the RAF and the Army. 

Support services manages assets, delivers complex programmes and generally supplies service delivery for the likes of the Metropolitan police, the BBC, Heathrow Airport and Network Rail. 

And its international division supplies engineering support to Africa and the Middle East. 

An ever strengthening order book provides optimism for future prospects

Babcock said it is bidding on work worth £16billion while the March acquisition of Avencis, a commercial helicopter operator for which Babcock paid £920million to reduce its reliance on a military services sector undergoing spending cuts, is progressing well. 

Its subsidiary Cavendish Nuclear has been instructed to build a major decommissioning support facility at Sellafield in a joint venture with Balfour Beatty worth £160million. 

The new facility will service equipment for the retrieval of historic radioactive waste from silos which is a high priority for the reduction of hazard at Sellafield. 

Babcock has also been awarded a new five year contract to supply and support training to the armed forces in a deal worth £180million. 

It will be responsible for the delivery, design and scheduling of training as well as providing functions including asset management, administrative support and medical support.

Less positively, some of the areas in which the company operate are subject both to reduced government spending with each of its divisions being subject to fierce competition. 

The current dividend yield of 2.1 per cent is somewhat anaemic. Its share price, currently 1121p, has rallied strongly for some time, having been 307p in 2008 during the financial crisis. 

The track record of the company along with, it would appear, an ever strengthening order book provides optimism for future prospects as evidenced by the market consensus which comes in at a strong buy. 

• This article is designed for investors who make their own decisions without advice. If unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.

• Richard Hunter is head of equities at Hargreaves Lansdown, www.hl.co.uk

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