Babcock shares are rising on the back of £2.3 billion in nuclear energy sales
Babcock shares soared on Wednesday as the defense group unveiled double-digit revenue growth on the back of a global military spending boom.
The FTSE 250 group’s turnover rose 11 per cent to over £2.3 billion in the first six months of the financial year, driven by 22 per cent growth in its nuclear division, while underlying operating profit rose 10 per cent to £169 million.
Babcock, which increased its interim dividend by 18 percent to 2 cents, told shareholders that the “complex geopolitical backdrop” had boosted demand for its “specialized capabilities” and thereby “driven more and better quality growth opportunities.”
Babcock is helping Britain develop four Dreadnought-class nuclear submarines to replace the Vanguard class and ensure continued deterrence at sea.
The results are in line with rival BAE Systems, which on Tuesday reported orders worth £25 billion this financial year, up from £15 billion just six months earlier.
Babcock’s order book fell slightly year-on-year to £9.5 billion, but the company expects performance to be weighted towards the second half of the year.
Boss David Lockwood said: ‘A backdrop of geopolitical instability means demand for what we do continues to increase, resulting in a growing and attractive range of opportunities over the long term.
“We select the right opportunities and are disciplined in how we deploy capital to deliver growth that maximizes shareholder value.”
Babcock shares rose 6 per cent to 529p by midday, after rising almost 30 per cent in the past 12 months.
While the group said it is on track to meet full-year expectations, analysts at Shore Capital warned of the potential impact of the fall budget.
They said: ‘We believe it may be necessary to moderate our figures following the NIC increase following the October Budget.
“That said, we remain positive on the story and believe the valuation is attractive.”
Babcock sees ‘timing mismatch’ and British nuclear upgrade
The company said a “mismatch in the timing between the current threats facing governments and new product development programs” puts the company well-positioned as countries around the world increase defense spending.
It added: “The pace and magnitude of fiscal growth is insufficient to match the growth in demand for military spending, making Babcock’s ability to add value affordably essential.
“Babcock’s ability to deliver increased availability and capacity from existing assets has become critical, further strengthening our value to customers.”
The group is also monitoring the government’s ongoing Strategic Defense Review ‘to determine how UK defense will meet the challenges, threats and opportunities of the 21st century, while taking into account the commitment to reduce defense spending to increase’.
In the autumn budget, Labor reiterated its commitment to a defense budget of 2.5 percent of GDP and an increase in defense spending of £2.9 billion by 2026, as well as an additional £3 billion a year to support Ukraine.
The group said: ‘Babcock is vital to the delivery of Britain’s nuclear deterrent, which has been confirmed as a national security priority.
“The government is committed to building four new Dreadnought class submarines to replace the Vanguard class and to ensure Continuous At Sea Deterrent (CASD), where one submarine is always at sea.
‘Working with the Government as our customer, we continue to invest in the nuclear submarine infrastructure required for the transition to the Dreadnought class and the next generation of AUKUS attack submarines and in providing lifetime support and availability to the entire UK fleet of nuclear submarines in the future. decades.’
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