RBC downgrades Babcock, slashes target price

The engineering group had several important positives going for it, according to the Canadian broker, including its position as a market leader, high barriers-to-entry, relationship with MoD and a long-dated order book.

But the lack of buying interest, even when the shares were changing hands at just eight times the company's estimated profits for calendar 2019, was "telling", it said.

"In our view, until we see both the Board and outlook 'refreshed', it is difficult to envisage relative outperformance," analysts Andrew Gibb, Andrew Brooke and Kate Somerville said in a research note sent to clients.

They also pointed to persistent concerns around the group's 'financial discipline' and negative earnings surprises.

The result had been 50% underperformance in its share price versus the FTSE All Share over the last five years, they explained.

Furthermore, and despite the 5% divided the yield the shares were sporting, RBC said it was rarely the case that such a backdrop was signaling that all the bad news had now been priced-in.

More so with management's currently low credibility with markets, meaning that the underlying strengths were likely to remain overlooked, they added.

The analysts downgraded their recommendation from 'outperform' to 'sector 'perform' and cut their target price from 1,000p to 700p.