Tuesday preview: Babcock, Enterprise Inns

14th May 2012 15:51

Babcock International, the engineering support services company, is set to publish full year figures on Tuesday and, according to Panmure Gordon, the key question at this stage is not so much how well the company did last year, but whether it can continue to replenish its bid order pipeline, and whether this can be feed through to earnings upgrades. "M&A [mergers & acquisitions] could also be on the agenda as its balance sheet continues to de-leverage post the successful integration of VT," the broker notes. Investor expectations on Babcock are rising and signs that growth momentum can be sustained are required to maintain this level of share price performance in Panmure Gordon's view. "However, the pace of outsourcing in its core areas continues to grow and we continue to believe Babcock is competitively well positioned, hence our positive stance ahead of results," the broker added.The median forecasts from the range of analysts following the stock are for revenue of £3.37bn, profit before tax of £276.4m, earnings per share of 62.09p and a full-year dividend of 21.46p.Panmure Gordon is going for earnings before interest, tax and amortisation of £347.2m and us ahead of consensus with its adjusted profit before tax forecast of £284.2m. It is forecasting net debt of £649.6m."We anticipate some near term slippage in its £10bn bid pipeline as £2bn of revenue moves into the order book in March/April. However, we expect this to be replenished quickly, with opportunities such as Magnox (£2bn), Mobile Asset Management (£1bn over time) and Emergency Services outsourcing (at least a £500m potential opportunity) to fill the gap," Panmure Gordon revealed. "We would also anticipate further tracking opportunities stemming from the MoD [Ministry of Defence] coupled with further Nuclear work potentially on the agenda. White Fleet Management is the only contract rebid we anticipate in the next 18 months (c£30m per annum over 10 years) suggesting upside potential to our current forecast assumptions," the broker added.Pubs group Enterprise Inns is set to serve up interim figures, with broker Charles Stanley noting that declines in revenue, profit before tax and earnings per share are expected. Despite that, it still thinks the shares are a speculative play on the sector and are worth a punt.The consensus is forecasting sales will slide to £330.0m from £346.0m at the interim stage in 2011, while profit before tax is tipped to dip to £69.0m from £74.0m the year before.Earnings per share are seen retreating to 10.2p from 10.8p last year and, as Charles Stanley observed, the company does not pay a dividend and is unlikely to resume doing so in the near future."The last update informed the market that the level of business failures was running at a lower level. Whether this is due to the worst pubs having already been sold or a genuine improvement in trading conditions is difficult to quantify. However, any signs of improving failure rates should be taken as encouraging given that the immediate direct benefit to the group is lower costs of supporting struggling tenants. The key issue is whether this trend is truly established and sustainable," suggests Charles Stanley's James Dawson."As the roll-out of the Beacon pub contract grows in significance, we expect that management will consider an update on the performance benefits of this strategy," Dawson added. Beacon is Enterprise's managed tenancy format.Panmure Gordon notes that since the trading update covering the 18 weeks to February 4th, trading is likely to have deteriorated due to the weather, "but the key focus should be on whether management remains confident it can prepay the fixed notes within the Unique securitisation, thus avoiding cash trap," the broker believes.On the economic front, UK trade figures are due out at 09:30. Market consensus is for a visible trade deficit for March of £8.40bn, which would represent an improvement from February's deficit of £8.77bn.INTERIMSEnterprise Inns, OMG, Sanderson GroupINTERIM DIVIDEND PAYMENT DATEGCP Infrastructure Investments Ltd.QUARTERLY PAYMENT DATEAbbott Laboratories, Marsh & Mclennan Cos Inc.INTERNATIONAL ECONOMIC ANNOUNCEMENTSBusiness Inventories (US) (13:30)Consumer Price Index (US) (13:30)GDP (Flash Estimate) (EU) (10:00)Gross Domestic Product (GER) (07:00)Manufacturing Inventories (US) (15:00)Retail Sales (US) (13:45)Retail Sales Inventories (US) (15:15)ZEW Survey (EU) (10:00)ZEW Survey (GER) (10:00)FINALSBabcock International Group, DCCIMSSCapital & Counties Properties , Evraz, G4S, Mithras Inv Trust, TT Electronics, Unite GroupAGMSBlackRock Latin American Inv Trust, Capita, Charles Taylor Consulting, Erste Group Bank AG, Hardy Underwriting Bermuda Ltd. (DI), International Power, NB Private Equity Partners Ltd., Proximagen Group, Standard Life Investments Property Income Trust Ltd., TMT Investments, TT Electronics, W H Ireland GroupUK ECONOMIC ANNOUNCEMENTSUK Trade (09:30)FINAL DIVIDEND PAYMENT DATECenkos Securities, Fyffes, HGCapital Trust, Kazakhmys, KBC Advanced Technologies, Rentokil Initial, Sagicor Financial Corp., Standard CharteredQ1Bouygues SA, New Europe Property InvestmentsJH