Babcock has been chosen as a preferred bidder in a Royal Navy support deal worth £360m

Courtney Goldsmith
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New British Royal Navy destroyer HMS Dar
The Royal Navy's Type 45 destroyers will be serviced by Babcock (Source: Getty)

Engineering outsourcing firm Babcock International has been selected as a preferred bidder in a deal with the Ministry of Defence (MoD) worth around £360m.

​Shares in the FTSE 100 company lifted 1.18 per cent at 892.45p in early afternoon trading when it announced it would provide support for the Royal Navy's fleet of warships over seven years.

The news is a boost to the company which last week said its nuclear reactor clean-up contract would be terminated early because of a "defective" government procurement process, sending its shares tumbling. Babcock said it would lose out on £100m in revenues annually from 2020/21.

Babcock will manage the technical configuration of systems for the Royal Navy's new Queen Elizabeth class aircraft carriers and Type 45 destroyers, supply spares and provide in-service support.

Chief executive Archie Bethel said the deal represents "a real vote of confidence in our capabilities and performance as the Royal Navy's key support partner."

In addition to this, Babcock recently won a £70m Maritime Equipment Consumables management support contract with the MoD.

"Both contracts play to Babcock’s specialist skills and further confirm the strong relationship with this key client, in our view," said Robin Speakman, analyst at Shore Capital.

Speakman added: "No guidance is given for the phasing of these revenues, so we leave our forecasts unchanged for the moment; however, we do expect that revenues will begin to flow from the current year just begun and build steadily to a mature level as the Queen Elizabeth carriers enter service over the next three years or so."

Britain's support services groups have struggled in recent months as clients delay new spending decisions because of uncertainty in the market since the Brexit vote.

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"Winning all four parts of the MSSP (Marine Systems Support Partner) contract is useful at a time of heightened debate around growth for outsourcing companies," Jefferies analysts wrote in a note.

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