Babcock International PLC's (LSE:BAB) recent marine investor day has reinforced confidence in its medium-term targets and revealed significant upside potential, according to analysts at RBC.
According to the Canadian bank, the event highlighted a shift in the company’s narrative, positioning shipbuilding as a key earnings driver over the next five years
RBC now estimates that the three-year shipbuilding pipeline exceeds £16 billion, compared to its previous £8 billion assumption, due to a revised view on per-ship contract values.
It continues to model mid-single-digit organic growth and earnings (EBIT) margins reaching 9% by FY30. Marine sales are forecast to rise from £1.6 billion in FY25 to £2 billion by FY30. However, management suggested this could be achieved by winning just two additional shipbuilding programmes, out of a wider pipeline covering more than 60 ships globally.
“We see upside to Babcock’s mid-term guidance,” analysts said. “Pipeline opportunities could drive 9-37% upside to FY28e adjusted EPS.”
The note identified several potential near-term catalysts including contract announcements at the DSEI defence conference, further wins in shipbuilding, and renewal of the UK Fleet Maintenance and Support Programme (FMSP), a contract estimated to be worth over £9 billion across more than ten years.
RBC has an 'outperform' rating for Babcock, with a 1,200p price target - versus a market price of 1,103p.