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(Sharecast News) - Berenberg has hiked its target price for Babcock from 1,360p to 1,440p and reiterated a 'buy' rating on the stock after raising estimates for the defence engineering business after this week's positive AGM update.
Reporting on trading over the first five months of the financial year, Babcock said on Thursday that the strong momentum in the Nuclear division was continued - the unit delivered double-digit revenue growth over the past three years - driven by both civil nuclear and submarine activity.
"This bodes well for profitability, as Nuclear is the highest margin division, in our view," Berenberg said.
Meanwhile, the company has secured several contract wins and additional strategic partnerships during the period, the broker highlighted.
"We continue to view the company's medium-term group mid-single-digit revenue growth guidance as conservative, set against the GBP16bn shipbuilding pipeline and a multitude of partnerships formed with other defence companies. We estimate 10% upside to our FY30 revenue estimate from these partnerships alone," Berenberg said.
The broker pointed out that Babcock's peers trade at higher valuation multiples, and shares should re-rate to trade in line with the sector.
The stock was 1./4% higher at 1,251.65p by 1144 BST, having gained 23% over the past month.
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