Babcock International has risen 1.5% after winning a ?200m deal to look after British forces bases across Germany.
The contract has been awarded by Defence Estates and is the first time it has outsourced such a deal to a private company. Under the five year agreement Babcock will deliver building and grounds maintenance and minor new work at 12 bases.
The company's shares have climbed 8.5p to 569.5p, and analyst Kevin Lapwood at Seymour Pierce said:
It is perhaps not earth shattering news but it does indicate that the new contract constipation that has blighted the first few months of the coalition government is coming to an end and it does underpin our view that there is plenty more opportunity for private sector companies like Babcock in defence outsourcing.
The Babcock order book is unchanged at �12bn but the pipeline now stands at �6bn (up from �5bn at the half year stage). It will be �10bn by November 2011. The shares are trading on a prospective mulitiple of 11.4 times falling to 10.4 times in 2012. We reiterate our buy recommendation and 670p target price.
Meanwhile there is growing talk the company is close to selling its Wakefield waste management contract as part of a disposal programme which analysts reckon could raise up to �300m. Kean Marden at RBS said:
According to an industry website [MRW], Babcock is almost ready to divest the non-core Wakefield waste PFI contract. We value the asset at �15m - small, but given the group's 2.8 times net debt/EBITDA ratio, successfully commencing the disposal programme should be positive for sentiment.
In December we highlighted four businesses that could be divested for �225m-�265m. Wakefield is particularly difficult to value as it is still in the trial phase, won't become fully operational until 2011 and has yet to move to financial close.
Source: http://www.guardian.co.uk/business/marketforceslive/2011/feb/11/babcock-contract-and-disposal-talk
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