Broker snap: Babcock's premium rating justified after strong results, says Panmure

14th May 2013 10:37

Panmure Gordon has reiterated its 'hold' rating for engineering support services giant Babcock, but has said that there is scope for forecast upgrades after the group's better-than-expected full-year results."Babcock has exceeded our forecast expectations on all fronts this morning, representing what was a very strong year for the group," said analysts Mike Allen and Paul Jones.Among the highlights of the results were: solid organic growth; improvement in margins; a de-leveraging balance sheet; substantial bid pipeline; and a falling pension deficit."We are maintaining our forecast assumptions ahead of the analyst meeting, although there could be scope for small upgrades to 2014E and 2015E assuming slightly higher organic growth on the higher margins the group are now operating on."Panmure has kept its 1,050p target price unchanged, which now equates to a price-to-earnings ratio of 15 and 14 for estimates for the years ending March 2014 and 2015, respectively. These are slight premiums to the outsourcing sector currently."This premium is justified given its above average growth profile and medium-term visibility. The market should take these results well this morning but we maintain a neutral stance for now given the premium rating," the analysts said.The stock was up 4.78% at 1,141p by 11:01.BC