YESTERDAY'S Cabinet changes contained one positive factor for Babcock

International in that Defence Secretary Malcolm Rifkind remains

ensconced and so will be able within the next three weeks to give the

decision on the submarine refit contracts which are essential to the

future of the Rosyth Dockyard -- and to rival bidder Devonport.

The company was pushing home the message that whoever wins the

#100m-a-year submarine contract will inevitably end up with the surface

business in due course. Some 3800 direct jobs would be at risk in the

Rosyth area.

Thorn-EMI is looking for a buyer for its 35% stake with talks

currently taking place with GEC although Babcock has pre-emption rights.

Fortunately, there is an increasing amount of commercial work with an

overall order book of #286m out of the group total as at end-March of

#733m, up 32%.

Not that Rosyth was a major money-spinner for Babcock with its

contributing about #4m pre-tax last year out of total profits slumping

from #56m to #21.1m. However, the latest group figures were depressed by

a #13m reorganisation charge whereas the 1991-92 result was boosted by

the release of a #6m provision.

Retrenchment at Renfrew is costing #8m as just over a quarter of

employees are made redundant as Babcock Energy now has to concentrate

upon exports for its future. Divisional profits halved to #8.75m with

the Renfrew contribution being around #2m.

The downturn was exacerbated by a #6.2m provision on the #30m contract

for the Killingholme power station on the Humber. The problem was

essentially that of prime contractor Siemens being subjected to

continual changes called for by PowerGen.

Changes in Government policy towards UK power generation for over two

decades has been highly destructive whether it be in the 1970's

indecision as to the type of nuclear reactor and in the 1986 the

planning of 900MW of coal-fired capacity which was cancelled in 1989,

while more recently the Orimulsion oil/coal fuel has effectively been

put on hold.

So Babcock claims it has no alternative but to concentrate on overseas

business.

Group turnover dropped 10% to #748m largely reflecting a downturn in

Africa partially offset by an increase in materials handling which is

now the most profitable group segment thanks in part to the contribution

from the Consilium ship-handling acquisition.

Acting chief executive Jeff Whalley expects that his replacement will

be announced by July -- predecessor Oliver Whitehead's compensation is

thought to be very substantial.

The dividend total has been reduced from 3.15p to 2.1p with a 1.1p

final for a 7.6% yield with the shares at 34[1/2]p. Current year profits

should show a marginal recovery to about #37m after adding back the

exceptional charge to leave the stock trading at just over eight times

earnings. It is going to be a long, slow haul.