By Joe Stonor
Babcock International shares tumbled after the U.K. government dropped plans to develop an advanced warship that the defense group was vying to develop.
Shares fell as much as 7% in morning European trade before paring losses to trade down 5.1% at 9.16 pounds in the early afternoon. Shares are currently down around 26% over the year to date.
BAE Systems--another U.K. defense company in the running to develop the now-canned ship--fell 1.4%.
The U.K.'s defense ministry confirmed Monday that it was abandoning plans to replace an ageing fleet of warships with the Type 83 destroyer, an experimental vessel that was still at an early design phase. The Royal Navy will instead invest in six smaller hybrid ships equipped to deploy drones.
Babcock had been among leading candidates bidding to build the Type 83 ship.
"Rather than concentrating capability in a small number of large, expensive ships, the Royal Navy's shift to a hybrid navy will mix crewed and uncrewed capabilities and be more suited to the pace and nature of modern warfare," the U.K.'s Ministry of Defence said.
The sharp market response to the U.K.'s procurement shift is an overreaction, Jefferies analysts wrote in a note to clients.
Though Babcock had flagged the Type 83 as a potential opportunity at an investor day last year, rival BAE Systems was always seen as the frontrunner for the project, the analysts said.
Moreover, Babcock could work on the new Common Combat Vessels that the U.K. is developing in place of the Type 83, they said.
Neither Babcock nor BAE Systems immediately responded to a request for comment.
Write to Joe Stonor at josephmichael.stonor@wsj.com