Highlights

  • Babcock International’s H1 FY26 revenue rose 7% to GBP 2.54bn, with EPS up 21% to 28.5p.
  • BAE Systems expects FY26 sales of ~GBP 30bn, underpinned by orders exceeding GBP 27bn.
  • Defence shares show strong YTD gains, with Babcock up 16.81% and BAE up 19.84%.

Recent geopolitical developments, including a U.S. military operation in Venezuela that resulted in the capture of President Nicolás Maduro and drew significant market attention, have contributed to renewed focus on defence and aerospace stocks. Following these events, European defence equities, including Babcock International and BAE Systems, recorded significant rise in the beginning of 2026. 

Babcock International: H1 FY26 Results
Babcock International (LSE:BAB) reported H1 FY26 revenue of GBP 2.54bn, up 7% year-on-year. Underlying operating profit rose 19% to GBP 201m, while EPS increased 21% to 28.5p. The interim dividend was raised 25% to 2.5p per share. Free cash flow reached GBP 141m, with cash conversion at 83%.

Revenue growth was driven by the Nuclear division, which achieved a 14% increase and a 9% margin. Aviation saw a 26% rise from new international contracts, while Marine and Land divisions posted improved margins, including the GBP 1bn British Army DSG contract.

Babcock’s contract backlog stood at GBP 9.9bn, supported by international wins in Canada and South Africa, as well as partnerships with Patria, HII, and Hanwha. Management maintained FY26 guidance of an 8% underlying margin, mid-single-digit revenue growth, and cash conversion above 80%, with a medium-term margin target of 9% or higher.

Stock Performance
As of 8 January 2026, Babcock shares traded at 1,451.00, extending gains from previous sessions. The stock rose 21.29% over the past month and 15.75% over three months. Six-month performance shows a 35.51% increase, with a YTD gain of 16.81%.

BAE Systems: FY25 H2 Performance
BAE Systems (LSE:BA) reported H2 FY25 results that support full-year guidance, with sales projected to grow 8–10% to ~GBP 30bn and underlying EBIT expected to rise 9–11% to ~GBP 3.3bn. Order intake exceeded GBP 27bn, including GBP 4bn for 20 Typhoon aircraft for Türkiye, USD 3.3bn in Electronic Systems, USD 1.7bn in US combat vehicles, GBP 1.1bn in MBDA awards, and GBP 0.9bn for the Dreadnought programme. The Norwegian Type 26 frigate deal is anticipated post-2025.

Operational performance continues across air, land, sea, missile, electronic warfare, and space systems. NATO spending increases and AUKUS developments provide a supportive medium-term backdrop. Management confirmed ongoing investments, acquisitions, and shareholder returns of ~GBP 1.5bn through dividends and buybacks, while maintaining guidance for EPS growth of 8–10% and free cash flow above GBP 1.1bn.

Stock Performance
As of 8 January 2026, BAE shares jumped 6.65% intraday to 2,054.00. Monthly gains were 19.84%, three-month growth was 1.94%, and six-month performance reached 9.43%, with YTD gains of 19.84%.

Defence Sector Momentum
Both Babcock International and BAE Systems reflect sustained investor interest in the defence sector, driven by contract wins, international expansion, and consistent cash generation. Babcock’s H1 results and BAE’s order book highlights ongoing activity and capital allocation in the defence industry, supporting their notable YTD share price gains.