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Shares of Babcock International PLC (LSE:BAB) increased by 3.5% following the company’s update on trading performance for the five months leading up to 31 August. The defence contractor reported that trading has been encouraging and aligns with the board's expectations, reflecting positive momentum as the company progresses through the first half of the fiscal year.
Babcock International noted strong organic revenue growth during the period, particularly in its civil and naval nuclear sectors, as well as in the land sector. The company confirmed that its full-year expectations and medium-term guidance remain unchanged, signaling stability in its financial outlook.
Key developments during the period included several significant achievements. The company highlighted the progress of the H&B Defence nuclear-powered submarine joint venture with Huntington Ingalls Industries Inc (NYSE:HII), which aims to accelerate Australia's AUKUS programme. Additionally, Babcock reported the successful reopening of a critical dry dock in Devonport, following a major regeneration project that will extend the operational life of HMS Victorious. Another notable development was the extension of a contract with Polish armaments group PGZ SA, ensuring continued support for the Miecznik frigate programme until 2031.
Analyst Joe Brent from Panmure Liberum observed that despite the absence of license profit and contract settlements from the previous period, the company has achieved profit growth. Brent's analysis suggests that while free cash flow in the first half may be weak, full-year earnings estimates remain largely unchanged with only minor adjustments anticipated at the divisional level.
Brent also commented on the broader sector outlook, noting that recent negative sentiment may be overstated, although UK budgetary pressures could continue to impact the sector. Despite this, he anticipates limited earnings upside for the coming years.
Overall, Babcock International PLC's recent performance update indicates a period of positive momentum and solid revenue growth across key sectors, with stable financial expectations and ongoing strategic advancements. The company’s successful project developments and contract extensions reflect its strong position within the defence sector.
