Babcock International (LSE:BAB, Financial), a U.K. engineering firm that operates and manages critical infrastructure for the U.K. government, was the largest detractor to the Fund’s performance this quarter. The company’s share price fell in June after management announced it would defer its final dividend and that its fiscal-year earnings were lower than expected. Babcock’s primary weakness has been its oil and gas aviation business. The global oil and gas market has become even more competitive and the significant fall in the price of oil, coupled with coronavirus-related restrictions, has made transport to offshore oil rigs more challenging and has hurt demand. Babcock recently announced that David Lockwood would become its new CEO in September, replacing Archie Bethel, who announced his retirement earlier this year. Lockwood was previously CEO of another large U.K. defense company, and we look forward to meeting with him in the coming months. Despite the company’s recent stock price weakness, we believe it is well positioned and trading at a large discount to our estimate of its intrinsic value.
From David Herro (Trades, Portfolio)'s Oakmark Intl Small Cap (Trades, Portfolio) Fund second-quarter 2020 shareholder commentary.
