23rd May 2018 13:34
LONDON (Alliance News) - Shares in Babcock International Group PLC rose on Wednesday as the defence support services company gave an encouraging update on its long-term performance with a strengthening bid pipeline.
Babcock shares were up 2.3% at 781.51 pence, among the best FTSE 250 performers.
Last year, Babcock shares had suffered due to negative sentiment toward the wider defence sector, and in November had warned of a tough trading backdrop. The company was subsequently demoted from the FTSE 100 as part of the FTSE Russell index review changes - also in November. The stock remains 19% lower over the past 12 months.
However, shares have rallied 26% over the past three months and the annual results pleased investors as Babcock lifted its dividend after annual profit and revenue grew.
The defence firm posted a pretax profit of GBP391.1 million for the year to March 31, up 8.0% from GBP362.1 million the year before. Revenue increased 2.5% to GBP4.66 billion from GBP4.55 billion.
As a result, Babcock raised its final dividend by 4.6% to 22.65 pence per share from 21.65p the year before. This will give a total dividend for the year of 29.5p per share, a 4.8% increase from 28.15p last year.
Babcock holds major contracts in the UK defence sector including with the UK Ministry of Defence, maintaining the Royal Navy's nuclear submarine facilities and at major airbases with the Royal Air Force.
Defence companies stand to benefit from recent military confrontations, with ongoing conflicts in Syria and Yemen.
Shares in midcap defence outsourcer Ultra Electronics Holdings PLC have risen 10% over the past three months while large cap defence giant BAE Systems PLC shares have risen 15% over the same period.
"War appears to be good for business and as the world gets embroiled in turmoil, defence contractors look to be on the up and up," said Accendo Markets analyst Artjom Hatsaturjants.
On Tuesday the National Audit Office said that the UK is set to spend as much as GBP51 billion on the its nuclear defence programme over the next decade, with Rolls-Royce Holdings PLC, BAE and Babcock winning a bulk of the nuclear defence contracts.
Looking ahead, Babcock has an order book of around GBP31 billion meaning 76% of the company's underlying revenue for the year ending in 2019 is already secured. This demonstrates a healthy demand for its services, it said.
The company said that over the year it maintained its win rates, achieving success in over 40% of bids for new contracts, and over 90% success rate for renewals.
Babcock said it secured contracts such as HADES - to provide technical support services at 17 RAF bases, a new contract at Hinkley Point C nuclear power station from EDF Energy to deliver training, and renewed its core firefighting contract in Italy for a further seven years. It also secured a deal with the Australian Defence Force for ground support equipment.
"We have always been a specialist engineering services company with a strong UK heritage but the changes we have made in the last couple of years are beginning to deliver meaningful benefits. Our new sector structure is making a real difference, we are increasingly focused on our core business areas of defence, emergency services and civil nuclear, and are on track to exceed our target of having 30% of the group's underlying revenue coming from international markets by 2022," said Chief Executive Archie Bethel.
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