Babcock leads election rally for FTSE 100

Babcock International was Friday's biggest winner as public sector outsourcers led the FTSE 100 to its biggest rebound in four months.

The Conservative general election victory should mean "minimal disruption to ongoing projects and existing decision makers," said UBS. "Delays matter because a typical UK government bid cycle (tender to contract start) can be up to two years."

Babcock, the Ministry of Defence's second-biggest supplier, takes about 55 per cent of revenue from the UK public sector. It and BAE Systems, up 2.4 per cent to 509.5p, are in the consortium to upgrade the UK's Trident nuclear submarine fleet, which the coalition government delayed in 2012 and which the Scottish National party opposes.

With the threat of a Labour-SNP coalition removed, Babcock bounced 9.4 per cent to £10.83. The stock had underperformed peers by 7 per cent over the previous three months.

"While the issue of Trident renewal is off the cards for now, the Strategic Defence and Security Review remains a potential risk," cautioned Merrill Lynch. "The Tories made no promises regarding defence spending and we fear that any additional cuts could hurt Babcock rather more than it did in 2010, given the difference in scale."

Other outsourcers to gain included Capita, up 6.7 per cent to £12.38, and Serco, which added 6 per cent to 137.1p. The FTSE 100 rose 2.3 per cent, up 159.87 points to 7,046.82, on about double the daily average volume.

A rebound among recent laggards such as housebuilders propelled the FTSE 250 to a record high, with the index closing up 2.8 per cent.

Barratt Developments gained 7.1 per cent to 549.5p, Persimmon rose 5.6 per cent to £17.46 and Taylor Wimpey was up 5.8 per cent to 175.7p on expectations that funding will remain for the Help to Buy scheme, which assists 40-50 per cent of their sales. Berkeley rose 9.9 per cent to £27.37 having been seen as most at risk from Labour's mansion tax, given 15 per cent of its revenue is from homes worth more than £2m.

Among the estate agents, Savills rose 9.4 per cent to 911p and Foxtons was up 9 per cent to 248.5p on nearly ten times the average daily volume.

Ladbrokes jumped 9.9 per cent to 116.1p as fears dissipated about tougher regulation of betting terminals, which provide 40 per cent of its operating profit. A more stable regulatory outlook was also helpful for bid speculation, Merrill Lynch said.

Beyond the election, Vodafone rose 0.6 per cent to 233.3p. Post-results comments from Liberty Global on its mobile strategy did nothing to quell a recent revival of speculation about a Liberty-Vodafone merger.

Imperial Tobacco was up 2.9 per cent to £32.97. Berenberg upgraded the company to "buy" on growing confidence that Reynolds American will gain clearance to buy Lorillard, thereby allowing their sale of US brands to Imperial.

Just Eat dropped 12 per cent to 436.7p after setting out plans to buy Australian peer Menulog, funded entirely by a share sale that will not be backed by its three main pre-flotation investors. Menulog's £445m price was equivalent to 34 times its year-to-March sales and 371 times its earnings before interest, tax, depreciation and amortisation.

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