Goldman removes Babcock from Conviction List after H1 results

Goldman Sachs has removed engineering and outsourcing group Babcock International from its Conviction List following the company's first-half results, in which it cut FY19 growth to the low end of its mid-single digit target range due to delays in some land government contracts.

It noted that since being added to the CL on 7 September 2016, the stock is down 37.4% versus the FTSE World Europe up 16.7%.

"We think the slowing UK GDP is driving uncertainty in contracts for Babcock and we see this affecting sentiment and lingering on share price near term. However, we remain 'buy' rated as we continue to believe Babcock is well positioned to deliver positive growth medium term and see valuation as attractive at current levels."

The bank said its economists have cut their UK GDP expectations to 1.5% for this year and 1.3% for 2018.

Goldman, which cut its target price on Babcock to 920p from 1,330p, stills see scope for the company to deliver 4% revenue compound annual growth rate over 2019-23E, which together with flat margins drives 5% earnings per share CAGR.

"What would make us more positive? Material contract wins or stronger earnings growth driving earnings upgrades or earlier-than-expected capital returns," the bank said.

At 0920 GMT, the shares were down 0.1% to 697.50p.