FTSE 100 defence group Babcock International (BAB) reported positive Q3 trading and maintained its FY guidance. After their recent strong performance, however, the shares trod water on the announcement.

Share price: £14.61 (-0.2%)	PE: 24.8x
Market Cap: £7.3bn	Yield: 0.6%

POSITIVE MOMENTUM

The defence group operates in the aviation, land and marine sectors as well as in nuclear power. It employs around 27,000 people, mostly in the UK where it makes 70% of its sales.

For the quarter to the end of December, the company said it saw good organic revenue growth. With the majority of forecast revenue for the year to March 2026 now in the bag, it maintained its results outlook.

Moreover, with margins having progressed during the year the firm said it was confident of meeting its 8% FY target. The consensus currently has revenue pegged at just over £5 billion and operating profit of just over £400 million, ie an 8% margin

Neither the firm’s forecast nor the consensus includes licence revenue from the £4 billion Indonesian Maritime Programme. Designed to strengthen Indonesia’s Navy and fishing fleets, any license revenue this year would be incremental.

CEO MOVING ON

Babcock also revealed chief executive David Lockwood would retire at the end of 2026. Lockwood joined in September 2020 and has been instrumental in the group’s transformation and recent success.

After an ‘extensive’ internal and external search, Harry Holt, current CEO of Babcock’s nuclear business, will take over. Nuclear is the biggest standalone unit within Babcock, and Holt has been key to its progress under Lockwood.

We were championing Babcock in 2023 when no-one else thought it was worth the candle. Since then, the shares have rocketed from 300p to just under £15, which is a pretty good return.

Unfortunately, like other large-cap defence stocks (BAE Systems, Rolls Royce), that doesn’t leave a lot on the table. In fact, the shares look expensive just about every way we look at them and we wouldn’t chase here.

Read the press release here: https://www.babcockinternational.com/investors/

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