Babcock International Group PLC (LON:BAB) (BAB.L) has released news today of its first aerial firefighting contract in Canada. The engineering services company has been awarded a new 10-year contract by the Government of Manitoba, Canada.
It is the first firefighting work that the company has won outside of Europe. It provides further evidence of the international growth potential which the company’s aerial emergency services business may offer.
The Wildfire Suppression Services contract is worth around £100 million, and will commence in April 2019. The company will manage, maintain and operate Manitoba’s fleet of seven firefighting fixed-wing Canadair water-bomber amphibious aircraft. They will be supported by three Babcock Twin Commander aircraft.
The company has a decades-long track record of operating and maintaining a fleet of 19 Canadair firefighting aircraft for the Italian Government. The contract in Canada will cover an entire province which is an area twice the size of the UK.
The company is aiming to increase its presence in the North American aerial emergency services market. The total addressable market is estimated to be around £1.4 billion. The US total addressable market is £1.1 billion, with it being accessible to operators in Canada. Therefore, as well as having access to Canada’s total addressable market of £300 million, the company may now be able to access the US market.
In my view, the deal is a step forward for Babcock. It may lead to further contract wins in future, and could help to further improve its financial performance. It may also lead to a more diversified company over the medium term.
With a P/E ratio of around 9, I think the stock could offer a margin of safety at the moment. Therefore, while the prospects for the world economy may be relatively uncertain, I’m upbeat about the outlook for the stock over the long run.