Babcock takes £140 million Type 31 contract charge while maintaining FY27 outlook and announcing fresh buyback (BAB)

BAB Babcock International (LSE:BAB) reported strong underlying operational and financial performance for the year ended 31 March 2026, supported by double-digit revenue growth and margin improvements across its Nuclear and Aviation businesses, alongside steady progress in its Marine and Land divisions. However, statutory performance was impacted by a £140 million one-off charge linked to the fixed-price Type 31 frigate programme. The charge resulted in a revenue reversal of approximately £100 million, pushed the Marine division into an operating loss and reduced overall group margins. Despite the setback, underlying free cash flow increased to £262 million while net debt declined to £329 million.

Management reaffirmed its FY27 guidance, noting that roughly 70% of expected revenue for the coming year is already secured under contract. The company also reiterated its medium-term objectives of mid-single-digit revenue growth, operating margins of at least 9% and strong cash conversion. During the year, Babcock secured several strategic contract wins, including additional Arrowhead 140 frigate licensing business in Indonesia, expanded submarine-related work in the United States with HII, light utility vehicle contracts for the British Army and Albania, and a significant UK small modular reactor Owner’s Engineer appointment. The group also unveiled a new £200 million share buyback programme, highlighting management’s confidence in future cash generation despite the challenges associated with the Type 31 project.

The company’s outlook is supported primarily by improving financial performance and a strong, confidence-boosting earnings call with reaffirmed margin targets and solid cash conversion. Technicals indicate an established uptrend but are heavily overbought, raising near-term risk. Valuation is the main drag due to a higher P/E and low dividend yield.

More about Babcock International

Babcock International Group is a UK-based defence, aerospace and nuclear engineering contractor that delivers engineering, support and training services to military, civil nuclear and critical infrastructure clients globally. The company operates across Nuclear, Marine, Land and Aviation markets, with increasing emphasis on defence modernisation programmes, maritime security partnerships and civil nuclear initiatives including small modular reactor projects.