Shares in Babcock International (LSE: BAB) are up sharply this morning, rising 13% after the company posted strong full-year results, raised its medium-term targets, and announced a £200 million share buyback – the first in its history. It’s currently the best-performing stock on the FTSE 100 so far today.
After years of sorting out legacy contracts, restructuring its operations and trying to win back investor confidence, Babcock is finally putting forward a consistent narrative: improving margins, growing revenues, and now a clearer commitment to rewarding shareholders.
Today’s announcement included a 52% rise in pre-tax profit and an 11% increase in revenue, with solid contributions from its Nuclear and Marine segments. That’s not a bad result for a company that, not too long ago, was more likely to be associated with cost overruns and strategic uncertainty than with dividend hikes and cash generation.
The timing of this performance is also worth noting. Defence spending is rising again, not as a short-term response to specific conflicts, but as part of a broader, longer-term trend across the West. Governments are rethinking their defence and energy security strategies, and Babcock, with its focus on nuclear submarines, naval infrastructure and defence engineering, finds itself aligned with that shift.
CEO David Lockwood called it “a new era for defence,” and while that kind of language often borders on self-promotion, in this case it feels grounded in market reality. Defence is one of the few sectors with a relatively clear growth runway in the current macro environment, and Babcock appears increasingly well positioned to benefit.
Still, this is not a business that can afford to coast. Babcock is only now starting to build a credible track record of margin expansion and consistent delivery. Its revised guidance, a new operating margin target of at least 9%, up from 8%, is ambitious, especially given the operational complexity of much of its work. But the fact that it expects to meet its current margin target a year earlier than planned does suggest internal progress is being made.
The share buyback, the first in the company’s history, is also noteworthy. It signals not just confidence from management, but a shift in tone, from recovery to reward. It’s not lost on the market that a company which only recently completed a wide-ranging turnaround is now handing back capital.
Whether this morning’s rally proves to be the beginning of a sustained re-rating or a short-term reaction will depend on what follows. The fundamentals are improving, yes, but the valuation will now face closer scrutiny. Investors will expect consistent performance to back up the renewed optimism.