Jefferies has reiterated its positive stance on Babcock International PLC (LSE:BAB) after the defence and engineering group reported first-half results that were ahead of expectations across the board.
EBITA was 7% above consensus at £201.1 million, with underlying earnings per share up 21% year on year and free cash flow rising 48% to £141 million.
Analyst David Farrell described it as “a strong set of results”, noting that organic revenue growth of 7% slightly outpaced the group’s mid-single-digit framework, while EBITA margins rose 90 basis points to 7.9%.
“There is margin progression across the board,” he said, adding that management remains optimistic about growth opportunities both in the UK and overseas.
Babcock’s nuclear division delivered the strongest performance, with revenue up 14% and margins reaching 9.1% – the first business unit to meet the company’s medium-term target.
EBITA in the unit grew 18% to £89.7 million. Marine EBITA rose 38% on a 6% revenue increase, supported by operational leverage in the LGE business. Aviation reported an 89% rise in EBITA, driven by improved project margins and pricing. Despite a 10% drop in revenue, the Land division managed to grow margins and limit EBITA decline to 8%.
Although full-year guidance remains unchanged, Jefferies believes Babcock is “tracking better than hoped” and expects the shares to outperform.
Farrell highlighted a potential extension of the UK’s Future Maritime Support Programme by March 2026 and an early 2026 decision on Cavendish Nuclear’s £300 million bid to support the UK’s small modular reactor rollout.
Further out, Babcock is in discussions over several multi-billion-pound international shipbuilding contracts, which underpin the Marine division’s goal to more than double Design & Build revenue between 2025 and 2030.