Babcock International shares rose nearly two per cent in early trading on Wednesday, despite the defence giant taking a £140 million charge that hit its headline profit for the 2026 financial year.
The FTSE 100 company, which operates major facilities in Plymouth, Scotland, Bristol, Portsmouth, and London, posted a 10 per cent increase in revenue to £5.3 billion, surpassing analyst expectations of £5.1 billion. However, headline profit dropped 20 per cent year-on-year to £293 million, down from £363 million and below the £413 million forecast by City analysts.
The profit decline was largely driven by a £140 million charge related to costly rework and design modifications on the Type 31 frigate contract — a fixed-price agreement to deliver five warships to the Royal Navy. Babcock cited complexities in the outfitting and commissioning phase of the initial vessels as significant challenges that dented its bottom line.
Despite the profit miss, the company announced a £200 million share buyback, reflecting confidence in its long-term prospects. Revenue growth was led by a 34 per cent surge in aviation revenue to £431 million, while nuclear revenue climbed 14 per cent to £2.1 billion, supported by submarine support activities.
Babcock has benefited from the global increase in defence spending. In February, shares surged after Prime Minister Keir Starmer urged Europe to step up defence spending, pledging to allocate 2.5 per cent of GDP to defence by April 2027. Over the past year, defence stocks have flourished amid soaring demand for munitions and military hardware, with Babcock's share price doubling over 12 months, though it has since eased due to geopolitical uncertainties.
The company stated that its nuclear energy and defence divisions remain highly relevant to customers in an increasingly complex geopolitical context. Chief executive David Lockwood, who oversaw a sixfold rise in the share price during his five-year tenure, announced plans to step down in January and is due to leave the board before the end of the year.
