RBC Capital Markets is projecting strong growth for Babcock International (LON:BAB), pointing to shipbuilding and nuclear projects as the main drivers, in a note dated Monday.
During Babcock’s Marine investor day, the company revealed a shipbuilding pipeline worth more than £16 billion over the next three years, well above RBC’s earlier estimate of about £8 billion. The brokerage also outlined a five-year pipeline of more than £23bn covering over 60 ships.
RBC said the event “marked a narrative shift for shipbuilding to become a key earnings driver” and added that guidance was “well underpinned, with upside potential”.
According to the brokerage, just two new shipbuilding programs could take marine sales to around £2 billion by fiscal 2030, up from £1.6 billion in fiscal 2025, with margins expected to rise from 6.1% to 9%.
“This seems undemanding,” the report noted, given that the £16 billion pipeline represents only 3.5% of global surface water opportunities.
The scope of opportunities stretches beyond the Royal Navy’s upcoming Multi-Role Support Ships and Type 83 destroyers, with speculation that Denmark could order three Type 31 frigates and Sweden four by the end of 2025.
Babcock could also see contracts from New Zealand and additional export licenses for its Arrowhead 140 design, targeted by Poland and Indonesia for a combined 21 ships.
Nuclear and advanced manufacturing also stand out as areas of growth. RBC said that after seeing Babcock’s missile tube production process at Rosyth, it “fully appreciate Babcock’s advanced manufacturing capability,” which could support both nuclear submarine construction and civil nuclear projects.
Advanced manufacturing revenues, currently about £50 million, could reach £100 million by fiscal 2030, with additional upside from work on small modular reactor components.
Altogether, RBC calculated that pipeline opportunities could lift adjusted earnings per share in fiscal 2028 by 9% to 37% compared with its base estimates.
“It showcases there is broad base of opportunities,” the brokerage said, pointing to both shipbuilding prospects and nuclear-related contracts.
Source :
https://www.investing.com/news/stock-market-news/rbc-sees-babcock-riding-16-bln-shipbuilding-pipeline-nuclear-upside-ahead-4228063
