Babcock International PLC (LSE:BAB) topped the FTSE 250 leaderboard on Thursday morning, up over 11% after what seemed like mixed full-year results.
Top-line numbers from the defence contractor were in line with expectations, said analysts at Liberum, though there was a £100mln hit on a Type 31 frigates contract with the Ministry of Defence, at the top of the previous guided range.
The Type 31 contract is being delivered amidst a dispute with the MoD due to cost overruns.
Operating profits were £178mln if including this hit, down from £238mln the previous year, but if excluding the frigate hit they were up 17% year-on-year to £278mln.
Net debt also decreased from £557mln to £346mln over the year.
Chief executive David Lockwood, who has been in place since August 2020, said: "We've made excellent progress this year, with better-than-expected cash generation, margin expansion and double-digit revenue growth.
"When we started our transformation, my first goal was to stabilise and strengthen the balance sheet and I'm delighted to say that work is complete. Babcock is now a higher-quality, lower-risk and more predictable business, with a clear focus on execution."
Liberum, which fired a warning shot earlier in the week, noted that the new management team has given its first medium-term guidance, with sales growth of mid-single digits, margins of at least 8% and cash conversion of at least 80%.
The broker maintained its net debt estimate of £279m, with stronger underlying cash flow off-setting the cash cost of Type 31, which is spread over five years to 2028.
"Surprisingly the balance sheet pension has become worse and there is new factoring," analyst Joe Brent wrote.
"We keep our recommendation and TP under review; we will update our thoughts on valuation once we have had more time to digest the complex results. We note that the share price is ahead of where it was prior to the Type 31 news."
The shares leaped 11.1% to 351.3p, their highest since early August last year.
They are still down over 40% since early 2020, having sunk to a 15-year low in early 2021, but have battled back as Lockwood made progress with his turnaround (despite stories about Royal Navy investigations over a repair made to a Trident nuclear submarine using superglue) and by positive sentiment towards defence companies in the wake of Russia's invasion of Ukraine last year.