25th Jun 2025 08:43
(Alliance News) - Babcock International Group PLC on Wednesday raised medium-term guidance, increased the dividend and launched a first ever share buyback as it said it stands to benefit from increased spending on defence.
In response, shares in the London-based aerospace, defence and nuclear engineering services company soared 12% to 1,157.00 pence each in London on Wednesday morning. It was the best performing stock in the FTSE 100 which was up slightly.
Babcock said it expects to achieve its previous medium term target of underlying operating margin of 8% in financial 2026, "at least one year earlier than we anticipated".
Underlying operating margin in the financial year to March 31 improved to 7.5% from 5.4%.
Babcock's new medium-term underlying operating margin aim is "at least 9%", up from "at least" 8% before.
Its medium-term revenue ambition for average growth of mid-single-digits and average underlying operating cash conversion of more than 80% is unchanged.
"Our new medium-term guidance is underpinned by the current outlook for our businesses and nearer-term pipeline," Babcock said in a statement.
Babcock reported pretax profit of GBP329.1 million in the financial year to March 31, surging 52% from GBP216.7 million a year prior.
Revenue was 11% higher at GBP4.83 billion from GBP4.39 billion, growth it said was driven by Nuclear and Marine. At constant currency, Marine revenue increased 12%, Nuclear rose 19%, while Land increased 2%. Aviation revenue declined 4% at constant currency.
"This is a new era for defence. 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," Chief Executive Officer David Lockwood said.
Lockwood said the strong financial performance in financial 2025, with "operational momentum across the business", has enabled the firm to "upgrade our medium-term guidance, increase our dividend and launch a GBP200 million share buyback programme for the first time in the company's history."
Babcock said the GBP200 million will be completed in the new financial year.
The firm raised its final dividend by 36% to 4.5 pence per share from 3.3p. It took the total dividend to 6.5p per share, a rise of 30% from 5.0p.
Contract backlog improved to GBP10.4 billion at March 31 from GBP10.3 billion a year prior, reflecting firm orders related to the five-year DSG contract extension and Mentor 2 contract in France, offset by revenue traded on the existing long-term contract portfolio.
"We are building a track record of growth, margin expansion, cash generation and investment that will sustain attractive growth and create shareholder value over the long term," Babcock said.
"The strengthening stance on defence and security by governments, and the clear recognition of the need for increased investment in defence capabilities and energy security, provides a positive backdrop for many of our addressable markets. Babcock is well-positioned for future opportunities that may arise in the longer-term," it added.
By Jeremy Cutler, Alliance News reporter
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