Babcock International Shares: Analyst Sees ‘Modest Upside’

Babcock International (LON: BAB) shares are in focus after Hargreaves Lansdown initiated coverage on the defence contractor, highlighting long-term growth drivers alongside some near-term risks.

Babcock is a UK-based aerospace and defence company that designs and manufactures key military equipment across land, air and sea, with additional revenue streams from support and engineering services.

The brokerage pointed to a supportive macro backdrop, noting that “governments around the globe are becoming more focussed on improving their defensive capabilities.”

It added that rising NATO spending commitments leave the group “well-placed to benefit from this long tailwind.”

This demand is already visible in the company’s £9.9 billion order backlog, which Hargreaves Lansdown said is “equivalent to more than twice 2025’s revenue,” providing strong near-term visibility.

Financial performance has also improved, with first-half underlying operating profit rising 19% to £201 million, supported by margin gains and contract renegotiations.

The Nuclear division remains central, accounting for nearly 40% of revenue and benefiting from contracts that typically last “5–10 years,” underpinning expectations for “double-digit revenue growth over the medium term.”

Hargreaves Lansdown also noted that the balance sheet is “in good shape,” with declining net debt and solid cash generation supporting dividends and buybacks.

However, the firm flagged risks, including CEO succession and potential supply chain disruptions. “We still see some modest upside on offer,” it said, while cautioning that long-term contracts can expose the group to cost overruns.