Berenberg hikes target price on Babcock
Analysts at Berenberg raised their target price on engineering services firm from 885.0p to 910.0p on Friday, stating the group was "charting a profitable course".
Berenberg said momentum at Babcock was building following a strong performance in FY25, with the company making "good progress" towards its medium-term guidance and taking "major steps" to de-risk its long-standing pension deficit over the past 12 months.
The German bank noted that this coincided with the company further strengthening its balance sheet, with leverage now "comfortably below medium-term guidance".
"The favourable outlook for defence markets in the UK and Europe supports sustained growth over the mid-term, in our view," said Berenberg, which reiterated its 'buy' rating on the stock.
"We move our FY25 estimates in line with the preliminary result and raise our FY26 EPS estimate by 3%. We model 30bp of underlying operating profit margin expansion in FY26 versus the adjusted underlying margin of 7.4% in FY25, after accounting for the circa £5.0m one-off benefit in Marine. In FY27, we forecast further margin expansion to 8.1%, versus medium-term guidance of at least 8%, and 75% underlying operating cash conversion to EBIT, versus medium-term guidance of at least 80%."
Reporting by Iain Gilbert at Sharecast.com
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