The Type 31 general purpose frigate programme will see the FTSE 250 aerospace and defence firm provide the UK with a fleet of five of its Arrowhead 140 frigates, at an average production cost of £250mln each.
Babcock said work on the five ships would begin immediately following the formal contract award later this financial year, with manufacturing to commence in 2021 and end in 2027.
The ships would be assembled at the company’s Rosyth facility in Scotland.
Archie Bethel, Babcock’s chief executive, said the company would now enter into “detailed discussions” with the MOD and its supply chain before the formal contract award later in the year.
He added that the Arrowhead 140 provided a “flexible, adaptable platform that delivers value for money and supports the UK's National Shipbuilding Strategy”.
In a note, analysts at Liberum said the new contract would provide “greater financial certainty” for the company going forward and the award was “the largest contract the we could have hoped for Babcock to win”.
Liberum currently rates Babcock at a ‘buy’ with a target price of 720p.
In mid-morning trading on Thursday, Babcock shares were 2.7% higher at 552.6p.
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