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Highlights

  • Berenberg rates Babcock a BUY with a target price of GBp 1,350, implying a 16.68% upside from the current price of GBp 1,157.

  • Underlying operating profit up 53% YoY, driven by strong growth in Nuclear and Land segments.

  • £200 million share buyback and 30% dividend increase signal confidence in sustained performance and cash generation.

Babcock International Group PLC (LSE:BAB), a leading UK aerospace and defense contractor, has been rated a BUY by Berenberg with a target price of GBp 1,350, indicating a 16.68% potential upside from its current share price. The recommendation follows its FY2025 performance and positive outlook underpinned by growing demand in key sectors and strategic capital allocation.

The company, which provides critical engineering services across defense, nuclear, and civil infrastructure, delivered positive financials in the year ended 31 March 2025.

Profits Surge as Margins Expand

Babcock reported an 11% organic revenue growth, led by particularly strong performances in the Nuclear and Marine divisions. Statutory operating profit surged 51% to £364 million, while underlying operating profit grew 53% to £363 million. Adjusting for non-recurring FY24 items, profit growth was still a healthy 17%.

The company also improved its underlying operating margin to 7.5%, a 50-basis point increase, as efficiency gains took hold across Nuclear, Land, and Aviation. Meanwhile, underlying EPS rose by 23% to 50.3 pence, driven by both margin expansion and lower interest expenses.

Balance Sheet and Investor Returns

Babcock’s cash generation supported a £110 million reduction in net debt, bringing gearing down to just 0.3x, compared to 0.8x the previous year. Free cash flow came in at £153 million, with an impressive 82% cash conversion rate.

Babcock announced a £200 million share buyback program to be executed in FY26. This is coupled with a 30% increase in total dividend to 6.5 pence per share.

Upgraded Medium-Term Targets

Babcock’s new medium-term guidance is equally bullish:

  • Revenue growth at mid-single digits

  • Operating margin of at least 9% (previously 8%)

  • Cash conversion sustained at 80%+

For FY26, the company expects to achieve its previous margin target a full year earlier than expected, supported by its £10.4 billion contract backlog and near-term pipeline.