Berenberg ups target for Babcock, cites outlook, leverage, pensions deficit

They based their decision on the favourable forecasts for defence markets in the UK and Europe, the "major" steps taken to de-risk the company's pension deficit and the reduction in leverage to below management's own medium-term guidance.

In the case of the latter, they estimated that net debt was standing at 0.3 times EBITDA on a covenant basis at the end of fiscal year 2025.

That compared to guidance for 1.0-2.0 times' over the medium-term.

"This stronger balance sheet offers growing optionality to invest further to sustain organic growth, pursue bolt-on M&A or increase shareholder returns," the analysts pointed out.

Hence, they judged that Babcock was making good progress towards its medium-term guidance.

Berenberg's recommendation for the shares was kept at 'buy'.