- Sales and earnings to top forecasts
- Nuclear business better than hoped
- Marine contracts also impress
Civil and defence contractor Babcock International (BAB) cheered investors with the revelation revenues and underlying operating profit for the year to the end of March would ‘exceed the top end of the range of analyst expectations’.
The shares jumped 54p, or 10%, to a new five-year high of 596p, taking them almost to the top of the FTSE 250 leader board.
RAISING THE BAR
Thanks to strong trading over first half to September, which continued into the third quarter to December, the majority of revenue for the year is under contract, and having reviewed the delivery forecast for the current quarter the firm expects to beat market forecasts.
Revenue is now expected to reach £4.9 billion compared with the consensus of £4.67 billion and a top estimate of £4.78 billion, while operating profit is seen topping both the consensus of £333 million and the top estimate of £340 million.
The ‘overperformance’ as the firm put it is largely due to double-digit organic growth in Nuclear, where there is increased new-build and decommissioning work plus greater submarine support activity, and in Marine where work volumes have increased and the Skynet 6 Programme is ramping up to provide next-generation satcoms to the Ministry of Defence.
Babcock chief executive David Lockwood said today's announcement showed the firm’s engineering skills and know-how were ‘in ever greater demand’ and there were ‘significant opportunities’ ahead for further profitable growth.
ANALYST VIEWS
‘It has been an up and down decade for Babcock beset by financial problems and uneven financial and operational performance, but under boss David Lockwood and numbers man David Mellors, the past couple of years have seen a revival in fortunes,’ commented AJ Bell investment director Russ Mould.
‘As countries strive to hit net zero targets nuclear has emerged as an increasingly viable energy solution and Babcock is getting more work in decommissioning old plants and building new ones. Today’s upgrade is just the latest endorsement of the current strategy and has notably helped drive the shares to a five-year high.’
Shore Capital analyst Robin Speakman said: ‘Given positive secular trends around defence spending and nuclear investment and decommissioning, we see strong value in Babcock’s fundamental multiples, especially as the balance sheet continues to strengthen.
‘We hope to see further upgrade opportunities emerge as we enter Babcock’s new financial year with more granular and firmer guidance.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Ian Conway) and the editor (Steven Frazer) own shares in AJ Bell.
