Source: Sharecast
In a note published on Monday, RBC said that Babcock's recent marine investor day had "showcased that guidance is well underpinned, with upside potential, strengthening the conviction in our recent initiation".
"The event marked a narrative shift for shipbuilding to become a key earnings driver."
Guidance is currently for the marine division to reach sales of around £2bn at a 9% margin by the 2030 full year, which RBC said seemed "undemanding".
Babcock has a three-year shipbuilding pipeline of more than £16bn - significantly above RBC’s initial £8bn estimate - which the broker noted was "further enhanced by a more than £1bn pipeline for advanced manufacturing".
RBC concluded: "We leave our estimates unchanged but increase our 2028 full-year estimated adjusted earnings per share upside scenario from pipeline opportunities to 9-37% (previously 8-30%). Near-term potential catalysts include contract wins at this week’s DSEI conference, shipbuilding wins and the renewal of Future Maritime Support Programme."
Shares in Babcock were up 1% at 1,103p as at 1345 BST. RBC has a target price of 1,091p on the blue chip.