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Babcock International (GB:BAB)
LSE:BAB
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Babcock International
(LSE:BAB)75Outperform
Positive Factors
Financial Performance
Babcock's trading statement highlights stronger developments than expected by consensus on FY25, with revenues now seen around £4.9bn.
Operating Profit
Operating profit is also expected above the top end of consensus at £339.7m.
Negative Factors
Valuation Gap
The Type 31 risk-retirement phasing is key to help narrow this valuation gap.
Babcock International (BAB) vs. S&P 500 (SPY)
Market Cap
£3.50B
Dividend Yield0.74%
Average Volume (3M)1.12M
Price to Earnings (P/E)18.2
Beta (1Y)1.32
Revenue Growth3.34%
EPS Growth481.76%
CountryUK
Employees25,163
SectorIndustrials
Sector Strength66
IndustryConstruction
Share Statistics
EPS (TTM)0.38
Shares Outstanding505,596,600
10 Day Avg. Volume1,223,051
30 Day Avg. Volume1,117,783
Financial Highlights & Ratios
PEG Ratio0.04
Price to Book (P/B)N/A
Price to Sales (P/S)0.78
Price to Cash Flow (P/CF)11.70
P/FCF Ratio14.30
Enterprise Value/Market CapN/A
Enterprise Value/RevenueN/A
Enterprise Value/Gross ProfitN/A
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
775.00pPrice Target Upside6.24% Upside
Rating ConsensusStrong Buy
Number of Analyst Covering4
Babcock International Business Overview & Revenue Model
Company DescriptionBabcock International Group PLC is a British engineering company specializing in construction and decommissions of nuclear power plants and submarines; maintenance support; fleet management for aviation, marine, and land; and provision of technical training and emergency services. The company's operating segment include Marine, Land, Aviation, and Nuclear. It generates maximum revenue from the Marine segment. Geographically, it derives a majority of revenue from the United Kingdom and also has a presence in Rest of Europe, Africa, North America, Australasia and Rest of World.
How the Company Makes MoneyBabcock International generates revenue primarily through long-term contracts with government and commercial clients, focusing on providing engineering support and project management services. The company's key revenue streams include the design, construction, maintenance, and decommissioning of naval ships and submarines, as well as providing technical training and support services for military and civil aviation. Additionally, Babcock earns income from its nuclear segment, which involves delivering nuclear engineering services and managing nuclear facilities. Significant partnerships with defense ministries, armed forces, and other governmental bodies contribute to its earnings, ensuring a stable and consistent revenue flow.
Babcock International Financial Statement Overview
Summary
Babcock International shows signs of financial recovery with improvements in profitability and cash flow, but faces challenges with revenue growth and high leverage. Strong cash flow generation provides a cushion, but the high debt level remains a concern.Income Statement
Babcock International shows a mixed performance on its income statement. The company has improved its net profit margin from a negative to a positive 3.77% over the past year, indicating a recovery from previous losses. Revenue growth was slightly negative at -1.05%, suggesting a need for stronger top-line growth to sustain profitability. The EBIT and EBITDA margins stand at 5.50% and 8.62% respectively, showing moderate operational efficiency. The gross profit margin is relatively low at 5.63%, which may impact overall profitability.65
Positive
Balance Sheet
The balance sheet indicates high leverage with a debt-to-equity ratio of 2.57, suggesting potential financial risk. However, there has been a slight improvement in stockholders' equity over the year. Return on equity has improved to 42.60%, mainly due to the increase in net income, though the equity base remains small. The equity ratio of 10.86% implies a low proportion of equity financing, which may be concerning for investors.58
Neutral
Cash Flow
Cash flow analysis reveals a strong free cash flow growth rate of 18.91%, highlighting effective cash management. The operating cash flow to net income ratio is 1.90, indicating that the company is generating solid cash flow relative to its net income. The free cash flow to net income ratio is 1.04, suggesting adequate conversion of profits into cash. These metrics demonstrate a healthy cash flow position.72
Positive
| Breakdown | ||||
| Mar 2024 | Mar 2023 | Mar 2022 | Mar 2021 | Mar 2020 |
|---|---|---|---|---|
| Income Statement | Total Revenue | |||
| 4.39B | 4.44B | 4.10B | 3.97B | 4.42B | Gross Profit |
| 247.20M | 833.60M | 886.30M | 270.40M | 513.60M | EBIT |
| 241.60M | 151.00M | 237.70M | -56.60M | 179.90M | EBITDA |
| 378.70M | 249.30M | 439.80M | -1.44B | 220.30M | Net Income Common Stockholders |
| 165.70M | -35.00M | 164.20M | -1.80B | -117.80M |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | |||
| 575.00M | 456.00M | 1.16B | 913.00M | 1.97B | Total Assets |
| 3.58B | 3.31B | 4.60B | 4.61B | 7.79B | Total Debt |
| 998.00M | 1.02B | 2.15B | 2.32B | 3.73B | Net Debt |
| 427.40M | 565.10M | 998.90M | 1.42B | 1.88B | Total Liabilities |
| 3.17B | 2.94B | 3.90B | 4.38B | 5.47B | Stockholders Equity |
| 388.90M | 353.90M | 682.00M | 213.00M | 2.30B |
| Cash Flow | Free Cash Flow | |||
| 172.30M | 144.90M | -154.80M | 287.70M | 133.00M | Operating Cash Flow |
| 314.70M | 270.00M | 48.40M | 464.20M | 353.30M | Investing Cash Flow |
| -100.60M | 74.80M | 297.00M | -61.20M | 2.60M | Financing Cash Flow |
| -85.50M | -666.10M | -122.70M | -1.22B | 727.70M |
Babcock International Technical Analysis
Positive
729.50
Price Trends
556.73
Positive
527.04
Positive
519.28
Positive
Market Momentum
38.39
Negative
80.63
Negative
70.22
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For GB:BAB, the sentiment is Positive. The current price of 729.5 is above the 20-day moving average (MA) of 633.27, above the 50-day MA of 556.73, and above the 200-day MA of 519.28, indicating a bullish trend. The MACD of 38.39 indicates Negative momentum. The RSI at 80.63 is Negative, neither overbought nor oversold. The STOCH value of 70.22 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for GB:BAB.
Babcock International Peers Comparison
Overall Rating
UnderperformOutperform
Sector (62)
Financial Indicators
Performance Comparison
GB:BAB
Babcock International
729.50
225.08
44.62%
BAESF
BAE Systems
21.19
5.09
31.61%
RYCEF
Rolls-Royce Holdings
10.35
5.37
107.83%
GB:AVON
Avon Protection
1,538.00
575.92
59.86%
GB:SMIN
Smiths Group plc
2,010.00
437.20
27.80%
Babcock International Earnings Call Summary
Earnings Call Date: Nov 13, 2024 | % Change Since: 46.69% | Next Earnings Date: Jul 25, 2025
Earnings Call Sentiment Positive
The earnings call reflects a positive outlook with strong revenue growth and cash flow improvements, despite some challenges in specific segments like Marine and Aviation. The Nuclear segment's performance and strategic partnerships indicate robust future growth potential.Highlights
Strong Revenue Growth
The company achieved an 11% organic revenue growth during the period, marking continued double-digit growth over the last two years.
Significant Cash Flow Improvement
Cash conversion was at 80%, with free cash flow reaching GBP95 million, significantly ahead of the previous period.
EPS and Dividend Increase
Earnings per share (EPS) increased by 14%, and the dividend was up 18% to 2p.
Nuclear Segment Performance
The Nuclear segment experienced a 22% organic growth, with Civil Nuclear up 30%. Margins improved significantly to 8.7%, hitting the medium-term goal ahead of schedule.
Debt Reduction
The company's debt was reduced to 0.6 times on the gearing ratio, showcasing a stronger balance sheet.
Positive Developments in Strategic Partnerships
New partnerships and collaborations, including a joint venture with HII in Australia and significant contracts with PGZ and Saab, indicate strategic growth and expansion.
Lowlights
Marine Segment Challenges
Despite a 6% organic revenue growth, the Marine segment saw a profit decrease due to the absence of license fees and increased overhead expenses.
Aviation Revenue Decline
Aviation revenues decreased by 4%, impacted by the transition from aircraft deliveries to longer-term support phases.
Order Book and Revenue Lumps
The order book remained broadly flat, with revenue recognition being 'lumpy' due to the nature of frame contracts.
Company Guidance
In the recent call, Babcock International provided strong guidance for the fiscal year 2025, highlighting several key financial metrics. The company reported an 11% organic revenue growth for the first half of the year, with underlying operating profit up by 10% at constant currency, indicating robust performance despite a strong comparator period. Margins were maintained at 7%, and earnings per share (EPS) increased by 14%. Cash conversion stood at 80%, contributing to a free cash flow of GBP 95 million and a reduction in the gearing ratio to 0.6 times. The dividend was raised by 18% to 2p. Sector-wise, Nuclear showed a remarkable 22% organic growth, achieving an 8.7% margin, while Land reported a 9% revenue increase and a margin of 7.7%. Although Aviation saw a 4% decline in organic revenues, it maintained stable margins at 5%. The outlook for FY25 remains positive, with around 90% of the year's revenue already under contract, supporting progression toward medium-term guidance.Babcock International Corporate Events
Business Operations and Strategy
Babcock International: Change in Major Holdings by Cobas Asset Management
Neutral
Feb 7, 2025
Babcock International Group PLC has announced a change in the voting rights held by Cobas Asset Management, an investment firm based in Madrid, Spain. The firm has reduced its stake in Babcock’s voting rights from 3.007670% to 2.930967%, as of February 6, 2025. This change may influence the company’s shareholder dynamics and decision-making processes, potentially affecting its strategic direction.
Business Operations and StrategyFinancial Disclosures
Babcock International Upgrades Revenue Expectations Amid Strong Growth and New Contracts
Positive
Feb 6, 2025
Babcock International has reported strong trading performance for the first nine months of the financial year, leading to an upgrade in their full-year revenue and profit expectations. The company anticipates revenue of approximately £4.9 billion, driven by double-digit growth in Nuclear and Marine sectors. Key projects include increased nuclear decommissioning work, submarine support, and the Skynet program. Additionally, Babcock has secured a significant 17-year contract, worth up to €800 million, to provide military air training solutions for the French Armed Forces, marking an expansion of its military activities in France.
Business Operations and Strategy
Babcock International: Cobas Asset Management Increases Stake
Neutral
Jan 30, 2025
Babcock International Group PLC has announced a change in the voting rights held by Cobas Asset Management, SGIIC, S.A., which now holds a 3.007670% stake in the company, up from 2.958727%. This adjustment in holdings signifies a slight increase in influence by Cobas Asset Management, potentially impacting Babcock’s corporate decision-making and reflecting stakeholder dynamics as investment entities adjust their positions.
DividendsRegulatory Filings and Compliance
Babcock CFO Engages in Share Reinvestment
Neutral
Jan 21, 2025
Babcock International Group PLC announced a transaction involving the Group Chief Financial Officer, David Mellors, who executed a dividend reinvestment standing instruction. The transaction involved the purchase of ordinary shares at different prices on two separate dates in January 2025, with purchases made on the London market. This disclosure is part of regulatory requirements for transparency and accountability in financial dealings by persons in managerial positions.
Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.