Babcock International PLC (LSE:BAB) was a strong riser on Tuesday as confirmation of a new Royal Marine ship contract coincided with an upgrade from Citi.
Mid-term guidance from the firm looks conservative, said the US bank.
Guidance for 8% margins is cautious in the midterm given the MoD SSRO baseline rate is 8% and the UK accounted for 67% of Babcock’s 2023 revenue.
“We welcome management conservatism and don’t want to be overly optimistic during a turnaround; nevertheless, the multiple remains very attractive among defence peers, we think management targets feel very achievable, and the turnaround seems to be going in the right direction.”
“We revisit the investment case for Babcock and raise our target price to 640p,” said Citi.
Shares rose 4% to 525p.