JPM NOTE22 Nov 2022 12:28
So undervalued it’s a steal here…
Bab**** International
Shares should rally on solid EPS and FCF beat (H1 23 results)
Our Take: We expect BAB to trade higher after reporting H1 23 EBIT and EPS 5% and 6% ahead of Vuma consensus, respectively. More importantly, FCF beat by £111m and net debt (IFRR 16 basis) was £143m better than expected (Table 1). BAB’s shares have underperformed European Defence peers by c70% in 2022 YTD; they are trading on a discount of c40% and c30% to the same peers on CY23 P/E and EV/EBITA, respectively. We believe BAB is at an inflection point, whereby investors can accept it is a defence company with a derisked balance sheet (rather than a highly levered support services company). We see meaningful upside for the shares over the next 12 months