Babcock’s frigate contract bids heading ‘in right direction’ as profit jumps
- Half-year underlying operating profit up 19%
- Raises interim dividend 25%
- CEO says bids for Sweden, Denmark and Indonesia frigates
- Bids going ‘in right direction’
- Shares close 1.8% higher
British engineering company Babcock (BAB.L), said its bids for building frigates for Sweden, Denmark and Indonesia were going in the “right direction”, after it reported a 19% jump in first-half profit and forecast further growth this year.
In a statement late on Friday, the British government said it had reached a 4 billion pound ($5.24 billion) deal with Indonesia, led by Babcock, to jointly develop maritime capability for the Southeast Asian country’s navy and more than 1,000 vessels for its fishing fleets
British Prime Minister Keir Starmer will announce the deal during a call with Indonesian President Prabowo Subianto on Saturday, the UK government said.
Babcock, which maintains Britain’s naval fleet, provides weapons systems and supports nuclear power projects, is in a strong position, its CEO said earlier on Friday, as it competes for a slice of higher government defence spending.
“I think they’re all going very much in the right direction,” CEO David Lockwood told Reuters of the frigate contract bids.
“It’s hard to put a timeline on, but if they’re going to achieve their in-service dates, Indonesia, Denmark and Sweden all need to make decisions within 12 months, and probably sooner.”
Rising geopolitical instability, Russia’s war in Ukraine and U.S. demands for higher defence spending have prompted European countries to boost military capabilities.
Babcock upgraded its medium-term forecasts in June as it looks to benefit from this trend.
In its half-year results on Friday, Babcock said it was on track to meet a consensus forecast for annual profit growth of 11% and an underlying operating margin of 8%. It also raised its interim dividend by 25% to 2.5 pence per share.
“Following these results, we regard the full-year as comfortably achievable,” Panmure Liberum analysts said.
The company’s shares recovered from an earlier drop in the session to close 1.8% higher. The stock has risen over 120% in the year to date.
Babcock is also involved in Swedish company Saab’s (SAABb.ST), bid to build submarines for Poland, Lockwood said, confirming a Reuters story. He said the British government was supporting the Saab bid “because it’s not just us, there’s a high UK content on that submarine”.
For the six months to September 30, Babcock posted underlying operating profit of 201.1 million pounds ($263 million), up from the 168.8 million pounds it made in the same period last year.
($1 = 0.7637 pounds)