Babcock targeted by anonymous short-seller
Babcock Group, the parent of Babcock Mission Critical Systems, is under attack from a short-seller called Boatman Capital Research.
A paper posted by Boatman has criticised the Group’s relationship with the Ministry of Defence –Babcock’s biggest customer – and claimed that the Group is due to take a £100 million ($130 million) loss due to delays on its Warrior tank fleet renewal programme with the British Army.
Investment bank Jefferies concluded that there was “no support” for Boatman’s allegations that Babcock’s relationship with the MoD is “terrible” and the suggestion that the group will take a £100 million penalty resulting in construction delays of a new dry dock in Devonport. These points were echoed by broker Liberum.
One criticism in the Boatman paper is that Babcock Group overpaid drastically for the acquisition of Helicopter operator Avincis in 2014. Boatman suggests that Babcock must have written down the value of the Avincis assets because “there is no way the company will recoup its investments”.
Babcock purchased Avincis for £1.6 billion in 2014 from previous owner KKR at 14 times earnings. Avincis was then renamed Babcock Mission Control.
At the time of purchase, Avincis had a fleet of 343 aircraft which provided mainly air ambulance and police helicopter services. Babcock took on Avincis’s net debt of £705 million.
In its third quarter report of 2014, just after the acquisition, Babcock Group’s revenue grew 24% and operating profit grew 39%. Year on year, Babcock Group’s net debt grew to £1,284.9 million in September 2014 compared to £521.2 million in September 2013.
Avincis is the third largest offshore oil and gas operator in the UK.
In the Group’s financial statement in May, Babcock confirmed that the oil and gas business is underperforming but EMS business is healthy, saying: “Our oil and gas helicopter business continues to underperform in a deteriorating and saturated market environment, and is furthered hampered by H225 helicopter costs. Aviation margin for the year was 14.1% (2017: 16.6%). Emergency Services continues to deliver healthy margins.”
The short-seller’s identity is unknown, a domain registry search gives no information about the individual that registered the website. However, the website appears to be registered in Panama.
Shortly after the post went public, Babcock’s share price fell more than 4% to 627p.
Babcock is not responding to the Boatman post.