Babcock delighted the City last week after it returned to the black with a 78% improvement in profits and a 22% increased payout to shareholders.
Chairman Dr John Parker, who took over four years ago and masterminded the group’s recovery, said he expected to achieve further improvements this year.
Strong cash generation has left the group with £82.1m to spend on capital expenditure and acquisitions.
Parker said the group, which has no borrowings, could easily afford £100m- £150m for the right deals by raising gearing to `a modest 40%’.
However, he ruled out making one large deal, saying he preferred to look for high-quality businesses of an engineering or technical services nature.
`We will probably not do it all in one shot. I think we will look for deals to add to both divisions,’ he added.
Profits at BES, the former Babcock Facilities Management Division, rose 28% to £13.3m. This includes the naval refitting business, which recently won £200m of MoD work, including the refits of HMS Sparta and HMS Ark Royal.
The group hopes to win other defence work, having submitted bids to develop a new sonar system for the Royal Navy, as well as a facilities management contract for the Aldermaston nuclear weapons development centre near Reading.
BMH, previously known as Babcock Materials Handling, boosted profits by 17% to £8.4m despite tough trading conditions in Asia.
Pre-tax profits, after £6.1m exceptional costs from the disposal of Babcock’s water engineering businesses, were £31.4m, compared to a loss of £4.5m a year ago.
Shareholders received a 1.40p dividend, making a total of 2.20p for the year, up 22%.
* News Analysis, p12