Babcock shares soar after overhaul plans announced, no equity raise needed

Shares in Babcock International (LON:BAB) were trading higher by over 25% in early trade after new CEO David Lockwood delivered an update following a review of the business.

The company is going to take huge writedowns of around £1.7 billion with the vast majority of the impact one-off in nature and non-cash affecting.

The defence contractor also announced it plans to divest certain business and anticipates that will generate proceeds of at least £400 million over the next twelve months.

The company is to alter their operating model, result in a one-off cash cost of approximately £40 million, however, this is forecast to deliver annualised savings of around £40 million.

Equity Raise?
Some analysts had predicted the company would have to undertake a rights issue to keep its balance sheet healthy, but the company said they aim to return to strength without the need to sell shares.

“We announced a series of reviews in January and promised to report back on our strategic direction, a new operating model and a new financial baseline at our full year results,” said CEO David Lockwood. “The early results from our reviews show significant write offs and a smaller ongoing reduction in the profitability of the Group.”

“Through self-help actions, we aim to return Babcock to strength without the need for an equity issue,” Lockwood added.