FTSE 250-listed defence contractor Babcock International PLC (LSE:BAB) benefitted from a sustained increase in global defence budgets in its 2024 financial year.
But the London-based group said that rising geopolitical tensions are causing military demand to outstrip the current growth in defence budgets.
Babcock’s primary revenue drivers are naval shipbuilding and nuclear submarine contracts under the trilateral AUKUS relationship between Australia, the US and the US.
During the 12 months, Babcock was awarded a contract by Saab to support the design of the Swedish Navy's ‘Luleå Class’ ship.
The group also commenced deep maintenance on the second of the UK's Vanguard Class nuclear submarines, HMS Victorious, under a £560 million contract.
Babcock also delivered six H160 helicopters to the French Navy as part of a 10-year contract with France's Ministry of Defence.
These partnerships and more led to a 34% underlying profit increase to £238 million.
Basic earnings per share on a statutory basis flipped to 32.9p from a 6.9p loss in 2023.
“Babcock is well positioned to benefit from the sustained uplift in global defence budgets, driven by the need to recapitalise, re-equip and modernise militaries, resulting in an increase in our opportunity set,” said chief executive David Lockwood.
Despite this increase in defence spending, Babcock said that “the growth in defence budgets is still not matched by the growth in military demand”.
“Additionally, the threats that governments face are here today, while typically new product development programmes take years to deliver,” the group added. “Increasing availability and capability with existing assets have become ever more important.”
Shares ran up 3.6% to 505.5p on Friday.