Babcock Shares Rise on Strong Underlying Results Despite £140m Type 31 Hit

Shares in Babcock International (LON: BAB) climbed 2.9% on Wednesday morning after the defence and engineering group delivered a broadly upbeat full-year trading update, though the stock remains firmly in negative territory, down 17.2% year-to-date.

The FTSE-listed company reported revenue of £5.27 billion for the financial year ending 31 March 2026, representing organic growth of 10% at constant currency, comfortably ahead of analyst consensus of £5.11 billion.

Excluding a one-off £140 million charge on its troubled Type 31 frigate programme, underlying operating profit surged 19% to £433 million, with the operating margin rising to 8.2% — exceeding Babcock’s own 8.0% FY26 target.

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The headline figures were, however, overshadowed by the Type 31 charge, which dragged reported underlying operating profit down to £293 million and the operating margin to 5.7%. The cost overrun stems from higher-than-expected rework during the outfitting phase of the Royal Navy warship programme, caused by design changes and the legacy impact of out-of-sequence build activity.

On the positives, underlying free cash flow surged to £262 million from £153 million a year earlier, while net debt fell to £329 million, giving a gearing ratio of just 0.2x. Babcock also announced a fresh £200 million share buyback programme, following the completion of its previous tranche.

Management left FY27 guidance unchanged, with around 70% of expected revenue already under contract. Medium-term targets — including an operating margin of at least 9% — were reiterated, supported by strong momentum in Nuclear and Aviation divisions and strategic wins including an Owner’s Engineer contract for the UK’s first Small Modular Reactor project.