Babcock expected to take a £100 million Avincis hit

Babcock Group is expected to take a £100 million hit on the value on its helicopter business – Babcock Mission Critical Systems – when it announces its half-year results on Wednesday.

According to reports from television news channel Sky News and The Financial Times, the group announce an impairment charge of approximately £100 million ($130 million) relating to the acquisition of helicopter operator Avincis.

Avincis was acquired in 2014 and rebranded as Babcock Mission Critical Systems.

The exact size of the write-down is being decided at a board meeting this week. According to Sky, the write-down will be a non-cash item and will affect the Groups profitability.

This follows on from a research note by Boatman Capital that claimed that Babcock overpaid drastically for the acquisition of Avincis. The note suggests that Babcock must have written down the value of the Avincis assets because “there is no way that the company will recoup its investments”. Shortly after the post went public, Babcock’s share price fell more than 4% to £6.27.

Babcock purchased Avincis for £1.6 billion in 2014 from previous owner KKR at 14 times earnings.

Various investment banks criticised the Boatman allegations, with Jefferies claiming there was ‘no support’ for the allegations that Babcock’s relationship with the MoD is “terrible”. However, Jefferies also cut their price target on Babcock shares from GBX 1,260 ($16.46) to GBX 950 ($12.41).

The Royal Bank of Canada is not showing confidence in Babcock either, having cut Babcock’s share target to £7.00 ($9.15), down more than 25% from the prior target of £10.00 ($13.07).