The FTSE 250 shares in engineering support services group Babcock International (BAB) are ticking up as the market digests its cash-and-shares acquisition of peer VT Group (VTG). The trend in underlying trading is encouraging and although Company REFS currently shows broker stances as ‘embargoed’ in response to the takeover, I noticed last week that Panmure Gordon has revised its fair value target on Babcock from 758p to 820p per share compared with the price currently trading around 580p – implying over 40% upside. The situation merits watching in the short and medium term, given a pre-close period update on Tuesday 30 March which ought to affirm trading, an analysts’ seminar on Wednesday [31 March] which might beget more insightful notes on the combined group, and evidence of the benefits emerging in months ahead. This looks modest in context if the prospective earnings growth and also compared with Serco Group (SRP) in the FTSE 100 index (UKX) which enjoys a P/E of about 17 times, approximately in line with its earnings growth. A 2 February interim management statement asserted trading in line with expectations, no change to market conditions and management confident the outcome for the year to end-March 2010 “will be another year of excellent progress”. read more

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