It’s not like Lockwood doesn’t relish a challenge. In 2017, shortly after his arrival at Cobham, he announced £750m of charges and writedowns, and ordered a £500m rights issue, the company’s second in a year.
When Cobham was sold from under him, he complained “he’d done the hard bit and was looking forward to the benefits” of his restructuring that made it a target for private equity.
The City is hoping for a similar turnaround at Babcock, but isn’t expecting a similar cash call. Barclays points to the company’s £2.1bn of liquidity, calling an equity raise “unlikely [despite] its gearing ratio being the highest across its UK defence peers”.
Instead, selling of parts of Babcock’s sprawling business and boosting productivity are seen as much more likely.
Long-term, stable military and other large government contracts will remain. But small and niche operations are likely to come under the microscope. Lockwood is currently in Italy as part of tour of Babcock’s international businesses, and insiders are preparing for sales processes.
One of Babcock’s headline contracts, to build Type 31 frigates for the Royal Navy, is also likely to come under scrutiny, according to Barclays.
It warns the £1.25bn deal for five ships carries the risk of being a fixed price arrangement, with defence projects having a history of delays and budget over-runs. Ensuring this doesn’t happen will be a Lockwood priority, as well as demonstrating Babcock has no issues working with the MoD.
While his predecessor had started to improve communications with the City, a key task for Lockwood will be clearly explaining Babcock’s strategy. Morgan Stanley’s Anvesh Agrawal said that because much of Babcock’s contracts are non-competitive and highly technical they should be higher margin.
However, the analyst warned the “increasing provisions and exceptional costs make it challenging to estimate the true underlying margin of the business. As new management gets to grips with the business and presents its strategic vision, it may aim to increase visibility on the margin outlook.
This could include a “reset” of the current margin target of 11pc.
Lockwood might have to tell the City that Babcock isn’t going to be as profitable as hoped for several years, though this could ultimately improve relations and end the confusion that has long been complained about.
With pressure on defence budgets only set to grown as governments tighten their belts, Lockwood faces a tough battle to make Babcock a target for investors rather than for the Boatman to return.