Babcock International PLC (LSE:BAB) shares rocketed 13% higher after the defence contractor reported a 51% increase in profit, a 30% rise in its full-year dividend, proposed its first ever share buyback and upgraded its medium-term guidance as it heralded a "new era" for the sector.
Statutory operating profit for the FTSE 100 group came in at £364 million for the year to 31 March 2025 on revenue that rose 11% organically to £4.83 billion, supported by growth in Nuclear and Marine divisions.
Underlying operating profit rose 53% to £363 million, or 17% excluding prior-year non-recurring items, with earnings per share up 49% to 49.1p.
A £200 million buyback will be carried out during the current financial year, the company said, while the total dividend was increased to 6.5p per share from 5p a year ago.
Chief executive David Lockwood said: “This is a new era for defence. There is increasing recognition of the need to invest in defence capability and energy security, both to safeguard populations and to drive economic growth."
This echoes the statement from 10 Downing Street yesterday that the UK will raise national security spending to 5% of GDP to match a wider Nato target by 2035, only three months after PM Keir Starmer made an increased pledge of 2.5%.
Lockwood said the strong financial performance and "operational momentum across the business" had enabled an upgrade to medium-term guidance, as well as an increased dividend and the launch of the first buyback in the company's history.
The group’s contract backlog rose slightly to £10.4 billion, with large Land and Aviation awards offsetting execution on long-term contracts. Underlying operating margin improved by 50 basis points to 7.5%, excluding last year’s one-off items.
In the medium-term, Babcock's outlook is now targeting mid-single digit average revenue growth, an underlying operating margin of at least 9% (previously 8%) and underlying operating cash conversion of at least 80%.
For the new financial year, the company expects to achieve an underlying operating margin of 8%, a year earlier than previously anticipated.
The shares jumped to 1,093p in early trading, up over 125% since the start of the year to their highest level in over a decade.
** Update: Adds share price details **