- Babcock International Group
- 18 August 2025 08:50:18
Source: Sharecast
The bank said Babcock is a significantly better-quality business 4.5 years into a turnaround, but its 5x PE (NTM) discount versus the European defence sector fails to capture this.
"Babcock's UK MOD relationship, military operational asset engineering know-how and infrastructure ownership underpins high visibility," RBC said.
"This, combined with a strong management team and execution, now provides strong prospects for success on an attractive hopper of opportunities in the UK and abroad."
RBC said Babcock's management is one of its key strengths. It noted that the team has reduced contract risk, improved earnings quality, and strengthened the balance sheet through disposals.
Babcock now has a 74% defence mix, versus 46% in 2019, RBC said.
"Beat and raise is the mantra, with three earnings upgrades in FY25 and a recently increased mid-term (3-5 year) guidance," it added.
RBC said it views guidance as conservative and sits around 3% ahead on FY26-28 estimated adjusted earnings per share, with potential for upside beyond this.
At 0850 BST, the shares were up 2.2% at 1,017p.