Business Services Weekly: The Service Station

Research evidence excerpt

Business Services Weekly: The Service Station

depending on performance. APR reported revenue of £10.7m, implying an

initial revenue multiple of less than 1x. We assume medium term growth of

6-7%, consistent with our organic assumption for XPS. The acquisition is

expected to be modestly earnings enhancing in its first full year of

ownership. Management believes it can improve profitability of APR but of

greater significance, APR brings strategic value to XPS, providing scale and

enhancing credibility in the insurance market.

n Babcock reported FY26 revenue +8% organic, with EBIT -19% due to

£140m Type 31 charges as previously disclosed and +19% excluding this

(on a margin +70bps to 8.2%). The contract backlog declined from £10.4bn

to £9.8bn owing to ongoing contract execution and as we await further

news re. a longer-term extension to the UK FMSP contract (6 month

bridging extension signed in Mar-26). FCF was +71% meaning covenant

ND/EBITDA reduced from 0.3x to 0.2x, despite completing a £200m

buyback (with a further £200m buyback announced at the FY trading

update). Management’s FY27 guidance was unchanged and it reiterated its

medium-term targets (mid-single digit organic revenue growth, 9% EBIT

margin, avg underlying OCF conversion >80%). The new CEO indicated

there was unlikely to be a material shift in strategic direction in the short-

term at least, and that key themes for the business during his tenure are

likely to be (i) the new nature of warfare (more than just drones – the linkage

between manned and unmanned platforms across all combat arenas); (ii)

war-fighting readiness (sweating availability of existing assets/platforms);

(iii) national strategic resilience. We think the business continues to exhibit