Citi downgrades Babcock to 'sell'

Babcock is in a sweet-spot strategically, given its growing market and “solid” barriers to entry, but at present there are “too many risks for comfort” around the investment case, analysts said.

In a research mote sent to clients, Citi analysts Ed Steele, Marc van’T Sant and Avinash Mundhra said they were adding top-line and succession risks to their previous concerns surrounding the company’s margins and cash-flow.

For those reasons, they trimmed their earnings per share forecasts for 2017 and 2018 by 2% each, lowered their target price on the stock to 1,000p and downgraded and slapped a ‘sell’ recommendation on them.

Their expectation was for the engineering support services organisation to continue at its medium-term 5-6% rate of organic growth.

However, a step-down in revenue growth at its Magnox joint-venture would dilute its rate of total organic growth to below management’s guidance of 3.5%, they believed.

Together with a slowdown in QE carrier growth that left Babcock facing a combined £160m headwind, they said.