Broker snap: Setting sail with a 'buy' at Babcock

10th May 2011 13:18

UBS has initiated coverage for engineering support services company Babcock International with a 'buy' and 770p target price, citing the group's high-quality outsourcing business, strong management team and track record of delivery.UBS notes that its exposure to the UK government has hit sentiment recently due to cuts in public spending over the past 12 months.However, the broker says that "significant increases" are expected in the bidding pipeline which "should herald a meaningful step-up in contract wins" over the next couple of years.While consensus expectations point to 5% organic growth, the broker said this may be conservative compared to the group's estimates of 10% sustainable organic growth. "If management is right, out-year forecasts could increase circa 17%."---BC