Babcock closed FY25 with clear operational momentum and a sturdier balance sheet. Revenue rose 11% on an organic basis to £4.83bn as Nuclear and Marine both accelerated, and the contract backlog edged up to £10.4bn, offering decent visibility. Management’s tone was confident: the dividend was lifted 30% to 6.5p, and a £200m buyback is slated for FY26, signalling belief in future cash generation.
Profitability stepped up. Underlying operating profit increased 53% to £363m (up ~17% excluding last year’s one-offs), pushing the underlying margin to 7.5%. Underlying EPS reached 50.3p, helped by a stronger mix in Nuclear, project delivery improvements, and lower finance costs. Cash conversion printed 82%, producing £153m of underlying free cash flow despite elevated capex for systems and sites.
Leverage continues to come down. Net debt excluding leases fell to £101m and covenant net debt/EBITDA dropped to 0.3x, leaving ample liquidity (~£1.4bn) against sizeable multi-year programmes. With pension deficit payments stepping down from ~£40m to ~£20m pa over six years, more of each incremental pound of profit should benefit equity holders.
Financial Story: Nuclear Does the Heavy Lifting
Top line growth was broad but nuclear did the heavy lifting: sector revenue rose 19% on strong civil-nuclear activity (Cavendish), submarine support under FMSP, and the HMS Victorious deep-maintenance programme. Marine grew 12% as Skynet and international naval support picked up; the year also lapped a large FY24 contract provision, making year-on-year profit progression look punchier. Land was steady (UK defence activity offsetting Rail softness) and Aviation declined as expected as the French H160 delivery phase rolled off.
| Metric | FY2025 | FY2024 | Change |
|---|---|---|---|
| Revenue | £4,831.3m | £4,390.1m | +10.0% |
| Operating Profit (Statutory) | £363.9m | £241.6m | +50.7% |
| Underlying Operating Profit | £362.9m | £237.8m | +52.6% |
| Underlying Operating Margin | 7.5% | 5.4% | +210 bps |
| Underlying EPS | 50.3p | 30.8p | +63.3% |
| Free Cash Flow | £153.4m | £160.4m | –4.4% |
| Net Debt (Excluding Leases) | £101.2m | £210.9m | –52.0% |
| Dividend per Share | 6.5p | 5.0p | +30.0% |
| Contract Backlog | £10.4bn | £10.3bn | +1.0% |
| Operating Cash Conversion | 82% | 136% | –5400 bps |
| Net Debt / EBITDA (Covenant Basis) | 0.3x | 0.8x | Improved |
| ROIC (Pre-Tax) | 37.0% | 26.0% | +1100 bps |
Margins improved where it mattered. Excluding FY24’s provision and property gain, group margin expanded ~50bps, with Nuclear up to 8.8% and Aviation nudging higher to 6.2%. Marine’s margin normalised to 6.1% given the absence of FY24 license income, but the mix still supported group profitability. Below the line, lower underlying finance costs and a slightly lower effective tax rate (25.4%) helped deliver a 23% like-for-like uplift in EPS.
Cash was solid in a heavy investment year. Underlying operating cash flow of £296m (82% conversion) funded £122m of net capex, higher pension contributions, and the dividend, while net debt excluding leases fell by ~£110m.
Capex remains above depreciation as Babcock upgrades systems (SAP), facilities, and programme delivery; management still targets ≥80% average cash conversion through the medium term, alongside mid-single-digit revenue growth and an underlying operating margin of at least 9% (now guided to be reached by FY26, a year earlier than the old plan).
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1. Nuclear & Marine Are Growth Engines
Civil nuclear is driving the next chapter of Babcock’s growth story. Revenue in the segment surged 19% to £1.8 billion, led by a 28% jump at Cavendish Nuclear as the UK ramps up investment in both civil and defence-related energy infrastructure. Programmes like the HMS Victorious life-extension and broader Future Maritime Support Programme (FMSP) continue to deepen Babcock’s integration with UK defence priorities, while project delivery improvements and contract repricing have lifted margins to 8.8%.
With the government’s long-term commitments to deterrent renewal, AUKUS, and new small modular reactor (SMR) development, Babcock’s position at the intersection of defence and nuclear energy looks increasingly strategic.
Marine, meanwhile, delivered a 12% revenue increase to £1.6 billion, fuelled by progress in Skynet satellite operations, naval support contracts in New Zealand and Canada, and record commercial orders in its liquid gas equipment (LGE) business. Although the segment cycled out of last year’s one-off license income, profitability normalised to a healthy 6.1% as execution improved.
The steady rhythm of naval maintenance work, global support deals, and new international partnerships should keep Marine a stable, cash-generative pillar within the broader portfolio, helping offset cyclical variability in other divisions.
2. Balance Sheet, Cash, and Capital Returns
Babcock’s capital discipline is finally showing through in the numbers. Net debt excluding leases dropped by over £100 million to just £101 million, while covenant gearing fell to 0.3x, its lowest level in years.
The balance sheet now provides flexibility for both investment and shareholder returns. Underlying free cash flow reached £153 million despite a heavy capex cycle, and the dividend was lifted 30% to 6.5p per share. A £200 million buyback is scheduled for FY26, signalling growing confidence in the company’s cash-generation potential as pension deficit payments taper and system upgrades near completion.
With over £1.4 billion in available liquidity and interest cover exceeding 30x, Babcock is comfortably positioned to finance long-term contracts while maintaining room for opportunistic growth.
Management’s capital allocation priorities, invest to grow, de-risk the balance sheet, and return surplus cash, now appear well aligned with a sustainable earnings base. If cash conversion holds near the 80% target and margins continue to firm, Babcock could shift from a capital-heavy contractor to a reliable free-cash-flow compounder within the next two fiscal years.
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3. Medium-Turn Outlook: Upgraded and Better Balanced
Babcock’s upgraded guidance reflects a business entering a new phase of operational maturity. Management now targets mid-single-digit average revenue growth, an operating margin of at least 9%, and consistent cash conversion of 80% or higher, all achievable by FY26, a full year ahead of the original plan.
The strategic backdrop is exceptionally supportive: Western defence budgets are expanding, nuclear energy is being reprioritised, and Babcock’s long-standing incumbency in complex, high-barrier contracts positions it to capture outsized benefits. Programmes tied to deterrent renewal, AUKUS submarine delivery, and the UK’s Type 31 frigate rollout anchor a multi-year growth runway.
The focus now shifts to execution, particularly in Marine margins, contract milestone timing, and foreign exchange exposure across South Africa, Australia, Europe, and Canada. Yet the overall picture has clearly improved: predictable cash flow, a cleaner balance sheet, and higher earnings quality are starting to make Babcock look less like a cyclical project contractor and more like a long-term operator in national security infrastructure. Hitting that 9% margin target in FY26 could be the inflection point that redefines investor perception from “turnaround value” to “defensive growth.”
The TIKR Takeaway
Babcock’s turnaround has evolved into a clear growth phase built on operational execution and capital discipline. The company’s steady expansion in nuclear and naval support, coupled with structurally stronger margins, has transformed it from a perennial value trap into a credible compounder within the U.K. defence ecosystem. With balance sheet risk largely neutralized, consistent cash generation, and renewed investor confidence, Babcock is now positioned to benefit from decades-long government spending cycles across deterrent renewal, AUKUS, and civil nuclear infrastructure.
Yet the story remains one of disciplined progression rather than breakout growth. Sustained delivery in Marine, reliable milestone timing, and tighter working-capital control will determine how quickly free cash flow scales to match earnings momentum. If management hits its FY26 targets, 9% operating margin, 80% cash conversion, and mid-single-digit revenue growth, the narrative could shift from “post-restructuring rebound” to “defensive growth compounder.” For investors, Babcock’s mix of resilience, order visibility, and re-rated profitability makes it one of the more quietly compelling stories in the U.K. industrial space right now.
Should You Buy, Sell, or Hold Babcock International Stock in 2025?
At current levels, Babcock International looks increasingly attractive as a credible long-term compounder rather than a cyclical recovery play. Margin expansion, disciplined capital deployment, and a now well-capitalized balance sheet are strengthening investor confidence after years of restructuring. The shares have already rerated sharply, so near-term upside may hinge on execution, particularly Marine delivery and working-capital control, but the risk/reward profile remains favorable given the company’s improving fundamentals.
That said, Babcock’s exposure to defence, nuclear, and infrastructure projects gives it one of the most resilient demand backdrops in the U.K. industrial space. With its debt down, cash conversion rising, and new programmes scaling, the story is transitioning from “turnaround” to “steady compounder.” FY26 will be the proving year, if management sustains margin gains and free cash flow momentum, Babcock could move from a quiet recovery to a genuine re-rating story.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!