- Revenue and profit top estimates
- Global instability driving demand
- Shares spike to four-year high
Defence contractor Babcock International (BAB) posted a stronger-than-expected set of interim results with ‘continued momentum across the group’ and confirmed it would hit its full-year targets.
The shares initially marched 95p or 19% higher to 594p, their best level in four years, before settling back at 544p for a gain of 45p or 9%.
STRONG DEMAND
For the six months to the end of September, the group delivered revenue of £2.4 billion, up 10% on last year and comfortably ahead of the company-compiled consensus estimate of £2.3 billion.
Demand was driven by ‘a backdrop of geopolitical instability’ which has resulted in ‘an expanding and attractive long-term opportunity set’ for its defence business, according to chief executive David Lockwood.
Operating profit for the half rose almost 28% to £184 million against analyst forecasts of £161 million, while underlying profit at constant exchange rates increased 10% driven by strong growth in the land and nuclear businesses.
The firm’s order backlog was flat versus a year ago at £9.5 billion as long-term contracts were executed, but there a couple of new contracts and extensions at home and abroad which are up for grabs before the end of March which should boost that figure.
STICKING TO ITS TARGETS
With 90% of expected full-year revenue already under contract at the start of October, the firm stuck to its outlook for March 2025 and its medium-term guidance of mid-single-digit annual revenue growth, an underlying operating margin of 8% and operating cash conversion of 80% or more.
Shares tipped Babcock as Great Idea at 329p back in March 2023 on the basis of its cheap valuation and the upside potential of the changes being made by the then-new management team of David Lockwood and David Mellors.
Lockwood and Mellors had form in turning around industrial businesses, having previously improved the fortunes of Cobham before its £4 billion sale to US private equity firm Advent in 2020.
