Babcock shares slipped on Friday after the defence group announced that CEO David Lockwood would retire by the end of the year, alongside a round-up of third-quarter trading.
The company said it maintained the strong trajectory reported at half-year and was confident of meeting its FY26 margin target of 8%, with contracted revenue now secured for the vast majority of the year ending 31 March 2026.
The group achieved good organic revenue growth and underlying operating margin progression through December. Nuclear operations led the expansion, driven by new build clean energy projects and submarine support activities. Aviation also posted strong growth as the French Mentor 2 contract continues its ramp-up phase.
Marine revenues increased on higher LGE volumes and the expansion of the Skynet programme. These gains more than compensated for the expected lower Land revenues due to reduced Rail activity.
All in all, Babcock’s third-quarter update was fine, but it provided little to drive shares higher after a 12% gain so far in 2026.
Indonesian Partnership Drives International Expansion
Babcock secured its position as the prime partner for Indonesia’s £4 billion Maritime Partnership Programme in November and will develop maritime capabilities for the Indonesian navy and fishing fleets.
In January, the company signed a Letter of Intent and an agreement for two additional Arrowhead 140 licences, scheduled for delivery within months. Should these Indonesian licences be completed within the financial year, they would provide upside to current expectations.
UK Defence Programmes Progress
The T31 frigate programme reached another milestone in December with the keel-laying of HMS Formidable at Rosyth. HMS Active is on track for rollout, whilst steel cutting for HMS Bulldog is expected imminently.
Babcock has expanded its strategic partnership with HII to support the US Virginia Class nuclear submarine programme. The Rosyth facility will manufacture complex submarine assemblies for Block VI fast-attack submarines, strengthening the AUKUS supply chain.
The company launched ARMOR Force with HII and Arondite to develop autonomous maritime capabilities. The initiative aims to transform Royal Navy frigates into command vessels controlling networked autonomous systems for anti-submarine, air defence and strike operations.
On land, the £1 billion five-year DSG follow-on contract continued its ramp-up. The first Jackal 3 “Extenda” high mobility vehicle for the British Army rolled off production lines at Devonport.
Babcock shares were 1% lower at the time of writing.