Babcock shares soar as FTSE 100 giant hails ‘new era’ for defence
Engineering giant Babcock posted a jump in profit for the latest financial year as the firm’s boss hailed a “new era for defence”.
The FTSE 100 company – which plays a significant role in supporting the UK’s nuclear submarine program – recorded an 11 per cent increase in revenue to £4.8bn.
Meanwhile, operating profit surged over 50 per cent to £364m. This included a one-off £17m payout for disposal of property but came despite losing a £90m contract.
Shares in the defence firm rocketed nearly 13 per cent as markets opened before easing to a near 10 per cent gain at 1,131.
The rapid growth came amid a soaring demand for defence as President Donald Trump’s return to the White House pressured nations to up their spending.
The UK could be forced to spend 3.5 per cent of GDP on defence by 2035 under new NATO rules, according to recent reports.
Babcock secured a fleet of landmark deals as defence demand grew, including a £70m contract to deliver new infrastructure facilities for Ascent, which is responsible for delivering the next generation of military fixed and rotary wing aircrew for frontline missions.
In its land division, the London-listed firm was awarded a sole-source five-year contract extension, worth £1bn, which made it a strategic support partner to the British army.
Babcock cited “increasing global market opportunity” across the defence and nuclear sector in its update on Wednesday.
“A combination of continued global insecurity, rising global threats and rapidly evolving technology has led to a strengthening of stance on defence and security by governments across all our markets,” the firm said.
Mark Crouch, market analyst at eToro, said the rise in global tensions had lit a “fire under Babcock’s prospects” as the firm found itself at the “slipstream” of new investment.
“With Babcock’s core income derived from long-term government contracts in naval, nuclear, and aerospace defence, the company is well-positioned to capitalise on what looks set to be a sustained period of investment,” Crouch added.
Babcock boosted by defence review
The UK government revealed its strategic defence review earlier this month, which included plans to build up to 12 new nuclear-powered attack submarines and move towards “war-fighting readiness”.
Labour has targeted investing 2.5 per cent of UK GDP in defence by 2027.
Shares in Babcock soared over seven per cent when the document was published, surpassing the 1,000p mark for the first time since September 2016.
Crouch said: “While the geopolitical backdrop remains tense, investors are cautiously optimistic. Ongoing global conflicts are understandably unsettling, but the resulting boost in defence budgets has, from a markets perspective, provided a more stable long-term outlook for companies like Babcock.”
The engineering firm reccommended a final dividend of 4.5p per share, taking the total to 6.5p – a 30 per cent year-on-year rise.
Babcock said it would commence a £200m share buyback program to be executed over the next year.
David Lockwood, chief executive of Babcock, said: “There is increasing recognition of the need to invest in defence capability and energy security, both to safeguard populations and to drive economic growth.
“Our specialist capabilities are increasingly relevant and, with a growing set of opportunities before us, Babcock is committed to play its part in driving prosperity alongside its customers.”