Panmure Gordon stays at buy on Babcock

Babcock´s mission critical services division failed to deliver at the half-year stage, but analysts at Panmure Gordon had anticipated it and other parts of the business acted as an offset.

Hence, analyst Michael Donnelly stuck to his 'buy' recommendation.

The engineering support services company´s MCS division had been the driver of the investment case for more than a year, but it now looked as if the fiscal year would be at the lower end of guidance for growth of 0%, Donnelly said.

As well, despite the stock´s outperformance over the last couple of months - circa 6% - it was still trading about 10% below Panmure´s target price of 1,108p, putting them on 14.1 times its estimate of 2016 earnings per share - in line with the shares’ ten-year median rating, the analyst said.

Babcock´s interim sales and operating profits (EBITA), at £2,349.2m and £253m, respectively, were "bang in line" with the broker´s estimates, delivering 10% organic growth, in line with the company´s guidance for the fiscal year.

On another note, Panmure Gordon said Compass Group´s "30% free-cash-flow yield stretch to BAB appears increasingly undeserved".

As of 15:01 shares in Babcock were highe rby 2.79% to 1,033p.