Babcock fights back against mystery Boatman

Responding to an attack from a mystery research firm, defence contractor Babcock International insisted its relationship with the Ministry of Defence was "as strong as ever".

There were calls for a boardroom shake-up over the weekend cited in the Sunday Telegraph, which cited a report from research firm Boatman Capital that emerged last month saying the FTSE 250 company had “systematically misled investors by burying bad news about its performance”.

Boatman, which has refused to disclose the identity of its directors, pointed out Babcock's thinning margins and said the Appledore shipyard in Devon has been used as a “piggy bank” as the company has taken dividends of £11m in the past two years but has “failed to win new business”. There were also claims of problems with work for the MoD, Babcock's main customer, where relations were said to be “terrible”.

Shares in the company had fallen around 30% since June to a seven-year low below 600p.

Firing back on Monday, Babcock, although it plans to close Appledore, said the Boatman report "included many false and malicious statements which the group strongly refutes".

In its defence, Babcock said it is one of the 34 top cross-government strategic suppliers, "who are continuously monitored", and is one of the MOD's top 19 strategic suppliers, currently delivering 128 contracts for the UK Government, "with future opportunities continuing to form a key part of our bidding pipeline".

The company said it still expects to reduce debt in 2018 and added a statement from the UK government, with a spokesperson noting that the MOD spent more than £1.7bn with the company last year and saying: "We monitor the health of all of our strategic suppliers, including Babcock, and remain committed to working with them on a wide range of programmes."

Babcock said it will provide an update on its small, low-margin businesses, including the Appledore shipyard and the reshaping of its oil and gas business, at its half year results on 21 November.

This lifted the shares more than 3% on Monday to 619.4p.

"Given the negativity around the shares we believe that this will have the desired effect of calming nerves and expect a positive reaction today," said analyst Joe Brent at Liberum.

He also noted other news relevant to Babcock included the marginal positive of an additional £1bn per year that the Chancellor set aside for the MoD in the budget but that the National Audit Office saying the MoD's Equipment Plan for 2018 to 2028 "remains unaffordable" with a gap of around £14.8bn. With Babcock a supplier of nuclear waste services, Toshiba's shutting its NuGen plant is seen as "a small long term negative", though there is optimism about the future of Wylfa nuclear power station.