Babcock shares rise on nuclear-powered gross sales of £2.4bn

Babcock shares soared on Wednesday as the defence group revealed double-digit revenue growth on the back of a global boom in military spending.

The FTSE 250 group’s sales swelled 11 per cent to more than £2.4billion over the first six months of its financial year, propelled by 22 per cent growth in its nuclear division, while underlying operating profits jumped 10 per cent to £169million.

Babcock, which hiked its interim dividend by 18 per cent to 2p, told shareholders the ‘complex geopolitical backdrop’ has bolstered demand for its ‘specialist capabilities’ thereby ‘driving increased, higher quality growth opportunities’.

Babcock is helping Britain develop four Dreadnought Class nuclear submarines to replace the Vanguard Class and ensure the Continuous At Sea Deterrent.

The results echo those of rival BAE Systems, which on Tuesday reported orders worth £25billion this financial year, up from £15billion just six months earlier.

Babcock order backlog was down slightly year-on-year at £9.5billion, but the firm expects performance to be weighted to the second half.

Boss David Lockwood said: ‘A backdrop of geopolitical instability means demand for what we do continues to increase, resulting in an expanding and attractive long-term opportunity set.

‘We are selecting the right opportunities and are being disciplined in how we deploy capital to deliver growth which maximises shareholder value.’

Babcock shares were up 6 per cent to 529p approaching midday, having added almost 30 per cent over the last 12 months. 

While the group said it was on track to meet full-year guidance, analysts at Shore Capital cautioned on the potential impact of the Autumn Budget. 

They said: ‘We believe it might be necessary to moderate our numbers following the NIC increase following the October budget. 

‘That said, we remain positive about the story and believe the valuation is appealing.’

Babcock eyes ‘timing mismatch’ and UK nuclear upgrade  

The firm said a ‘timing mismatch between present threats that governments face and the new product development programmes’ leaves it well-placed as countries around the world up their defence spending.

It added: ‘The pace and extent of budget growth is insufficient to match the growth in demand for military spend, making Babcock’s ability to affordably add value, essential.

‘Babcock’s ability to deliver increased availability and capability from existing assets has become critically important, further reinforcing our value to customers.’

The group is also keeping an eye on the Government’s ongoing Strategic Defence Review ‘to determine how UK defence will meet the challenges, threats and opportunities of the 21st century, whilst taking account of the commitment to increase defence spend’.

In the Autumn Budget, Labour reiterated its commitment to a defence budget of 2.5 per cent of GDP and a £2.9billion increase to defence spending for 2026, as well as an additional £3billion annually to support Ukraine.

The group said: ‘Babcock is critical to the delivery of the UK’s nuclear deterrent, which has been confirmed as a national security priority.

‘The Government is committed to building four new Dreadnought Class submarines to replace the Vanguard Class and ensuring the Continuous At Sea Deterrent (CASD), with one submarine always at sea.

‘Alongside the Government as our customer, we continue to invest in the nuclear submarine infrastructure required for the transition to the Dreadnought Class and next generation AUKUS attack submarines and the delivery of through-life support and availability of the UK’s entire nuclear submarine fleet over future decades.’