Babcock International (LON: BAB) increased its full year revenues by 10% and sharply improved its margins. There are still plenty of exceptionals and provisions in the figures of the marine and aerospace company, though, but the share price jumped 9.6% to 346p, which is the highest it has been for nearly one year.
The disposal programme has been completed and more than two-thirds of ongoing revenues are in the defence sector. The contract backlog is worth £9.5bn. Of that, £2.8bn is due to be delivered this year and another £700m of framework business also expected.
In the year to March 2023, revenues improved from £4.1bn to £4.44bn. Underlying operating profit declined from £237.7m to £177.9m, which includes a £100m provision for the loss on the construction of Type 31 navy ships.
Net debt was reduced from £557m to £346m over the 12 months to March 2023, helped by £159m of disposal proceeds. There is no dividend. There could be a return to dividend payments this year.
Babcock International believes that it can achieve average underlying operating profit cash conversion of 80% over the next three years. Revenues should grow in mid-single digits and margins improve.
First quarter trading is in line with expectations and Peel Hunt is maintaining its 2023-24 pre-tax profit estimate at £250m. The forecast earnings multiple is less then ten.