Babcock’s performance is right on target

Defence tech company Babcock International (BAB) released a positive trading update last week, signalling a strong start to the financial year and reassuring investors of its ongoing stability and growth prospects.

Babcock maintained its full-year guidance and made significant strides in strategic initiatives, including the launch of H&B Defence, a joint venture with HII, to enhance capabilities in support of Australia’s AUKUS nuclear-powered submarine program. Additionally, the reopening of the 9 Dock in Devonport is set to facilitate a £560 million maintenance program for HMS Victorious, vital for the UK’s continuous at-sea deterrent strategy.

Babcock also secured a contract extension with PGZ SA to support Poland’s Miecznik frigate program until 2031. With half-year results due to be published on November 13, 2024, we would expect to see Babcock’s share price strengthen leading up to this release.

Bytes achieves double-digit profit growth

Bytes Technology (BYIT) released a robust half-year trading update last week, reflecting strong performance for the financial half-year ended August 31, 2024.

Bytes ended the first half with a net cash position of £71.5 million, demonstrating solid financial management, even after distributing £35.3 million in final and special dividends during the period.

Bytes trading statement said that cash conversion rate for the first half indicates a typical weighting towards the second half, with expectations for strong conversion across the full year. CEO Sam Mudd expressed confidence in its growth strategy. He emphasised that Bytes Technology is well-positioned to capitalise on the increasing demand for services in cloud computing, cybersecurity, and AI. The company will release half-year results on October 15.  

Rentokil drop amid North American setbacks and profit warning

Shares in Rentokil (RTO) have dropped sharply following a profit warning tied to challenges in its North American division, particularly the integration of Terminix. This has resulted in a £50 million hit to adjusted operating earnings, compounded by unfavourable currency movements. Despite this, we remain calm and continue to hold Rentokil in our list of FTSE Investor open positions.

Rentokil’s valuation also remains reasonable with a PE ratio of 15.7, a 2.6% dividend yield, and healthy free cash flow per share (19.7p). The company’s balance sheet is solid, with manageable debt and a strong book value of £4.16 billion.

Although shares have dropped 45% over the past year, Rentokil’s market leadership and long-term stability — supported by consistent dividend growth — make a solid case for holding through this temporary downturn.

Trainline tracks ahead of the curve in first half

Trainline’s (TRN) share price jumped higher following the release of a bullish trading update earlier this month.

This growth can be attributed to the growing adoption of digital ticketing, with UK Consumer net ticket sales reaching £2.0 billion, a 15% increase from the previous year. The shift towards digital was evident, with e-ticket penetration climbing to 51% of total ticket sales, up from 46% in H1 FY2024. Notably, the impact of strike actions was less significant compared to last year, contributing positively to the overall performance.

Looking ahead, Trainline has raised its full-year guidance for both net ticket sales and revenue growth, now expecting to operate at the top end of their earlier ranges. Adjusted EBITDA is also anticipated to exceed previous projections. Additionally, Trainline is actively engaging in a share buyback program, having repurchased £24 million of its own shares as part of a £75 million initiative that began earlier this year.

Volution shares jump following £144m Fantech acquisition

Volution (FAN) surged higher on Friday after announcing its agreement to acquire the Fantech Group for AUD$280 million (£144 million), marking a significant strategic move for the company. This acquisition is poised to enhance Volution’s market presence in the Australasian region, where Fantech is a leading provider of both commercial and residential ventilation solutions.

The acquisition will significantly contribute to Volution’s revenue structure, with Australasia projected to account for over 30% of the Group’s revenue following the transaction. The deal aligns seamlessly with Volution’s long-term strategy of acquiring leading ventilation brands, following its previous expansions in the region since acquiring Simx in 2018.

In terms of financing, Volution plans to use proceeds from a newly secured £230 million multi-currency Sustainability Linked Revolving Credit Facility, coupled with cash reserves on its balance sheet. This move positions Volution to maintain a strong financial profile, with post-acquisition leverage expected to range between 1.5 to 1.7 times.