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By 11:00 today (21 November), the Babcock International Group (LSE:BAB) share price was down 1% following publication of the group’s results for the six months ended 30 September (H1 26).
Let’s take a quick look at some of the numbers from the international defence company.
What did the results reveal?
In brief, it’s more of the same with most financial measures going in the right direction.
Compared to H1 25, revenue was up 5.4%. And operating profit improved by 27.5%. The underlying operating margin rose by 0.9 percentage points to 7.9%. Earnings per share were 21.3% higher.
Free cash flow was also up with net debt falling.
The latter as a proportion of EBITDA (earnings before interest, tax, depreciation and amortisation) was 0.2 at 30 September, down from 0.6 a year earlier. At 31 March 2022, it was 1.8. This is important. Babcock’s balance sheet strength gives it plenty of scope to invest more to fund further growth either organically or through acquisition.
Over the same period, its contract backlog increased by £400m.
The company say it’s on course to deliver full-year earnings in line with the consensus of analysts. This implies that the stock’s currently trading on 20 times forecast earnings. Although this is above the FTSE 100 average, it’s less than BAE Systems and Rolls-Royce Holdings, two other companies operating in the sector.
Overall, it seems like another impressive set of numbers to me. And yet the share price is down slightly. Some of this could be explained by it not being a particularly good day for the market in general.
Some concerns
Or — despite this apparently positive picture — some investors might be reflecting on the risks associated with taking a position.
Principally, it’s important to acknowledge that not everyone is comfortable investing in the sector. This means there’s a smaller pool of investors available to potentially drive the group’s share price higher.
Also, even after today’s 25% increase in its interim dividend, based on amounts declared over the past 12 months, its yield is one of the lowest on the FTSE 100.
But the company’s operating in an industry that’s clearly growing. In 2024, global military spending was $2.7trn. For context, that’s bigger than all but seven of the world’s economies. NATO members are committed to spending 3.5% of GDP on core defence by 2035.
No regrets
I already own shares of Babcock. And I don’t see anything in today’s results to make me question my decision to buy them. On this basis, others may want to consider adding the stock to their own portfolios.
Finally, it’s great to see a British company do so well. Since November 2020, its share price has risen 246%. This shows there are some UK stocks that can outperform a number of the more famous ones on the other side of the Atlantic. For example, over the same period, Apple and Microsoft have seen their share prices increase by ‘only’ 127% and 126%, respectively.
