Under-pressure engineering contractor Babcock International PLC (LON:BAB) got some good news today, after being selected as preferred bidder for all four elements of a Ministry of Defence programme, potentially worth in the region of £360mln over seven years.
The FTSE 100-listed firm will become a Marine Systems Support Partner (MSSP) for the Royal Navy's new Queen Elizabeth Class (QEC) Aircraft Carriers and Type 45 Destroyers.
Subject to contract, Babcock said together with its partners it will become the Systems Technical Authority for the platform and propulsion systems on both classes of vessel.
Babcock's success comes shortly after news that the company has also secured a seven year contract from the Ministry of Defence, valued at up to £70mln, for all six Maritime Equipment Consumables (MEC) packages.
Under the new MEC contracts Babcock will provide a supply management capability to ensure that the consumable spares needs and requirements of Royal Navy ships and submarines are met.
Babcock Chief Executive Archie Bethel said: "Our selection as the MoD and Royal Navy's partner for MSSP and MEC represents a real vote of confidence in our capabilities and performance as the Royal Navy's key support partner.”
Revenues to flow ...
In a note to clients, Shore Capital analyst Robin Speakman said: “Both contracts play to Babcock’s specialist skills and further confirm the strong relationship with this key client, in our view.”
He added: “No guidance is given for the phasing of these revenues, so we leave our forecasts unchanged for the moment; however, we do expect that revenues will begin to flow from the current year just begun (FY2018, March) and build steadily to a mature level as the QE carriers enter service over the next three years or so.”
The analyst reiterated a ‘buy’ rating at 882p for Babcock shares,
In early trading, the stock was 3.5p lower at 878.5p.
The contracts boost comes a week after Babcock revealed that it will take a revenue hit of around £100mln from financial year 2020/21 after a joint venture agreed to end the Magnox nuclear power station decommissioning contract.
Cavendish Fluor Partnership (CFP) - in which Babcock has a 65% stake – said it had come to a mutual agreement with the UK's Nuclear Decommissioning Authority to bring to an end the Magnox decommissioning contract at the end of August 2019, having operated the contract for a full five years.
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