Babcock confirms FY26F outlook as Nuclear and Aviation divisions expand

Investing.com -- Babcock International (LON:BAB) on Thursday said trading in the first five months of fiscal 2026 had been “encouraging,” with strong growth in its Nuclear and Aviation divisions offsetting weaker performance in Land, according to its annual general meeting statement.

The company reported organic revenue growth and progress in underlying operating margins, following a 7% margin in the first half of fiscal 2025. Trading overall was described as in line with the board’s expectations.

Nuclear growth was attributed to civil and submarine support. Jefferies noted the performance came despite a pullback in MIP revenues, which peaked at £273 million in the first half of fiscal 2025. 

The brokerage has factored in a 25% decline in MIP revenues for fiscal 2026. Nuclear had grown 22% in the first half of fiscal 2025.

Aviation growth was driven by the ramp-up of the French Mentor 2 contract, with Jefferies estimating £60 million in revenues for fiscal 2026 from that program. That would represent a 19% increase for the division.

The Marine division also grew, while Land declined, largely due to reduced Rail activity. 

The company said the reduction followed a tougher comparison base after 9% organic growth in the first half of fiscal 2025.

On contracts, Babcock said the timeline for the float-off of the second Type 31 ship, HMS Active, remains unchanged and is scheduled for before the end of fiscal 2026. In recent months, the group announced industry partnerships with BAE Systems Bofors, Patria, Hanwha Ocean, HII and KNL.

The company confirmed fiscal 2026 expectations and reiterated medium-term targets of mid-single-digit average revenue growth, operating margins above 9% and cash conversion above 80%. 

It said the U.K.’s Defence Industrial Strategy released during the period aligns with its capabilities.

Babcock also reported that about 25% of its £200 million share buyback program has been completed, with the remainder scheduled for completion by the end of fiscal 2026. Net debt to EBITDA is forecast to remain at about 0.3x, the same level as fiscal 2025.

Jefferies said Babcock’s discount to European peers has narrowed to about 30% from 40%, “we continue to believe that this discount is too deep,” they said. 

The brokerage maintained its price target at 1,330p, valuing the company on a 2029 sum-of-the-parts basis at an average 15.2x EV/EBIT.