May 23, 2018 / 8:25 AM / a year ago

UPDATE 1-British engineer Babcock's confidence boosted by contract wins

(Adds CEO interview, details)

LONDON, May 23 (Reuters) - Babcock said a number of major contract wins in Britain and abroad had increased its confidence that the British engineer would deliver steady organic revenue growth in the year ahead, helping to lift its shares on Wednesday.

Babcock, which provides specialist support and services to groups including Britain’s Defence Ministry, reported a 2.8 percent rise in underlying revenue to 5.4 billion pounds ($7.2 billion), in line with forecasts and which it described as a record performance.

That was despite an expected fall in revenue from a major aircraft carrier programme that is nearing completion. Underlying profit before tax rose 3.6 percent to 513 million pounds and the full-year dividend rose 4.8 percent.

“The biggest factor that is holding us back is the headwinds of the aircraft carrier step down which was significant,” Chief Executive Archie Bethel told Reuters.

“If you ignore the aircraft carrier we grew at about 5.5 percent this year so the underlying is still very healthy.”

Babcock is in the final stages of work on the Queen Elizabeth Class Aircraft Carrier programme. HMS Queen Elizabeth was officially handed over to the Royal Navy this year. Its sister ship HMS Prince of Wales was formally named and floated out of the build dock.

For 2018/19, the group said it expected to again deliver low mid-single digit organic revenue growth with broadly stable margins.

Bethel also said he did not expect an ongoing British defence review to lead to lower budgets for Babcock, an issue that has unnerved investors in the past.

“We are treating it, in terms of forecasting, as neutral,” he said. “We’re certainly not expecting any reductions or cuts to budgets. Will we get a bigger budget and more spend? I don’t know.”

Shares in the group rose 5 percent at the market open and were trading 3 percent higher at 0730 GMT, giving it a market value of 4 billion pounds.

Babcock’s stock has been steadily rising since the wider outsourcing sector was rocked by the collapse of construction and support services group Carillion in January. It trimmed its revenue forecast in February due to slower demand in the oil, gas and defence sectors.

Babcock says its focus on large public contracts which provide essential services protect it to a large extent from uncertainty, and mean it is more dependent on maintenance work with current contract-holders than additional new spending.

In the year to the end of March, it added contracts worth more than 4.5 billion pounds to its order book, including work to provide technical support at 17 airforce bases, naval support and contracts in Italy, Spain and Australia.

$1 = 0.7461 pounds Reporting by Kate Holton Editing by Sarah Young and Edmund Blair

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