Babcock International profits jump in ‘new era of defence'
Babcock International is fired up for what its chief executive called 'a new era for defence' as the military contractor upgraded its expected earnings for the coming years against already soaring profits.
Babcock shares, which have already enjoyed a stratospheric performance in 2025, rose to 11-year highs, up 13 per cent, or 137p better, at £11.70.
The £5.8 billion FTSE 100 group has become the UK's second largest defence contractor after BAE Systems, running the naval dockyard in Devonport and maintaining the nuclear submarine fleets, building warships at Rosyth in Scotland, and plugged into multiple support programmes across the armed forces.
Its recovery after operational failings and questionable accounting before the Covid-19 pandemic follows the arrival as chief executive of the former Cobham boss David Lockwood, whose five-year rebuild at Babcock has coincided with the UK's biggest commitment to rearmament in decades. The company is also one of Britain's civil nuclear contractors, on site at Hinkley Point for instance, putting it at the centre of the country's investments in low-emission electricity.
'This is a new era for defence,' Lockwood 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. A complex and rapidly changing global context for defence has highlighted the increasing relevance of our specialist capabilities.
'A growing set of opportunities before us … has enabled us to upgrade our medium-term guidance, increase our dividend by 30 per cent and launch a £200 million share buyback programme for the first time in the company's history.'
He said the 12 months to the end of March had been a 'pivotal year' for the new Babcock. Revenues were up 11 per cent at £4.8 billion. Operating profits rose 51 per cent to £363 million. Ignoring one-offs, profit margins hit 7.5 per cent, up from 5.4 per cent.
• Tempus: Should you invest in Babcock right now?
Net cash inflows of £153 million reduced net debt to £373 million and enabled in increase in the dividend from 5p to 6.5p
There is much more to come, Lockwood said, for a business that employs more than 23,000 people.
He expects average annual revenues to grow by mid-single-digit percentage points. Its medium-term target of an 8 per cent profit margin will be hit this year, and that target is now replaced by a goal of 9 per cent, taking it further away from the 5 per cent profit margins at best of conventional government outsourcing contractors.
The projected cash inflows have prompted the decision to start buying back shares, a programme used by companies to underpin the rating of their stock price.
Shares in Babcock, alongside its military-facing peers on the stock market, have enjoyed a stellar rise. When defence stocks began to take off after the Russian invasion of Ukraine, the response of Babcock shares was muted, with investors uncertain of its turnaround progress. The past six months have been a different story — the shares have more than doubled since the turn of the year.
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