Babcock International PLC (LSE:BAB) shares fell from the decade high reached earlier in the week after the defence contractor said trading in the first five months of its financial year had been "encouraging", with organic revenue growth and underlying operating margin progress in line with board expectations.
The FTSE 100-listed group kept its full-year outlook unchanged, having upgraded its medium-term guidance in June.
Strong growth was seen in the Nuclear division, driven by civil nuclear projects and submarine support contracts, and the Aviation wing, as a result of the ramp-up of the French Mentor 2 pilot training contract, as well as ongoing growth in Marine.
Group growth was slightly held back by lower revenue in Land, which accounts for 23% of sales, due to lower activity in the Rail business.
As well as a "supportive" macro environment, which not many companies in other sectors would be able to identify at this point in time, Babcock flagged several contracts of note, including a £65 million Type 31 frigate programme, a £114 million submarine disposal defueling and an AU$250 million, eight-year follow-on contract with the Australian Border Force.
The £200 million share buyback announced at results in June is around 25% complete, it added, with the programme set to be wrapped up by the end of the financial year.
Babcock shares fell 2.2% to 1,200p after hitting a new record high the day before, up more than 150% over the last year.
The shares have gained on the back of the uncertain geopolitical backdrop and a push from America for European countries to boost defence spending.
This is the context in which to view the negative response to "what is a fairly run of the mill and in-line trading update", said analysts at AJ Bell.
"Babcock has secured some meaningful contracts in the five months to 31 August and the launch of its new AI product Nomad – providing real-time intelligence to military and security clients – shows it is engaging with new technologies.
"Not too many businesses can call the macro environment supportive right now, but in an increasingly fractious world, Babcock is one."
On the buyback, they said the board "may face some questions about whether purchasing its own stock is the best use of capital when it is not a million miles away from its all-time highs marked in 2014.
"However, it is a display of confidence in the group’s prospects."
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