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Babcock International has increased its revenue target, raised its dividend and launched a £200mn share buyback as Britain’s second-biggest defence contractor reaps the benefits of higher military spending amid heightened geopolitical tensions.
The company, which maintains all of the Royal Navy’s nuclear submarines and builds warships such as the Type 31 frigate, said on Wednesday that it was expecting average revenue growth of 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.
“This is a new era for defence,” said David Lockwood, Babcock chief executive. There was an “increasing recognition of the need to invest in defence capability and energy security, both to safeguard populations and to drive economic growth”, he added.
Shares in the FTSE 100 group have more than doubled in the year to date and closed on Tuesday at just over £10 each. The company is benefiting from significant investment in particular in the UK’s nuclear submarine activities following the trilateral Aukus pact agreed with the US and Australia.
Revenues and underlying operating profit in the year to March came in above the company’s expectations at the beginning of the year, while overall cash generation was also better than forecast. Babcock reported an 11 per cent increase in revenues to £4.8bn. Underlying operating profit surged 53 per cent to £363mn.
The company said it expected to hit its previous medium-term target of underlying operating margin of 8 per cent in the current financial year, at least one year earlier than expected.
