Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Babcock International raised its profit targets and dividend on Wednesday, sending shares in the UK’s second-largest defence contractor up more than 12 per cent and cementing its position as the best performer on the FTSE 100 index this year.
The company, which maintains the Royal Navy’s nuclear submarines and builds warships such as the Type 31 frigate, hailed a “new era for defence” as it also announced its first share buyback programme.
“This is a new era for defence,” said David Lockwood, Babcock chief executive, adding that there was an “increasing recognition of the need to invest in defence capability and energy security”.
Babcock shares were up 12 per cent in London, giving it a market capitalisation of £5.8bn, and extending their gains for the year to 132 per cent.
Babcock said it was expecting average revenue growth in the mid-single digits and an operating margin of at least 9 per cent in the medium term, up from at least 8 per cent previously. The company also set out plans for a £200mn share buyback.
The company, which re-entered the blue-chip FTSE 100 index in March after a seven-year absence, is reaping the benefits of a significant increase in defence spending by the UK in particular, which accounted for 62 per cent of its revenues last year.
The UK government’s recent strategic defence review prioritised investment in the country’s nuclear capabilities. Babcock’s maintenance business is also expected to benefit from plans to expand the country’s nuclear attack submarine fleet from seven to as many as 12 through the trilateral Aukus pact with the US and Australia.
Revenues and underlying operating profit in the 12 months to March surpassed the company’s expectations, while overall cash generation in the period also beat its forecast.
The group reported an 11 per cent increase in revenues to £4.8bn, with its nuclear and marine divisions driving growth. Operating profit surged 51 per cent to £364mn in the 12 months to the end of March, when its contract backlog stood at £10.4bn.
Based in London, Babcock said it planned to pay a final dividend of 4.5p per share, taking the total to 6.5p per share, up 30 per cent from the previous year.
