BABCOCK INTERNATIONAL, owner of the Rosyth and Faslane shipyards, will ready itself for a £350 million bid for the Devonport submarines operation on Thursday when it is expected to announce soaring profits and a fat increase in dividend.

The group, headed by chief executive Peter Rogers, is set to cash in on the growth of its various operations with news of a near 50% profits surge to around the £60m mark while dividends could increase by a third to around 8p.

Overall turnover is likely to have passed the £1 billion mark for the first time. Directors will confirm that their order book has sailed comfortably past £2bn ahead of substantial further business from the Ministry of Defence on the two new aircraft carriers and the inflow of work for the updated Trident defence system.

Babcock shares moved to new all-time peaks of around 466p last week in anticipation, up from 300p in the past year since the group escaped a potential break-up move by BAE and the VT group.

Brokers say that Babcock's all-round UK strengths, including its abilities to handle nuclear decommissioning, mean that the MoD should nod through its proposals to buy Devonport, in Devon, which has been put up for sale by its controlling shareholders at the American KBR group. Its only serious rival is understood to be the private equity group Carlyle, which took the major role in the privatisation of the Qinetiq defence research concern.

Bids were submitted last week, although KBR told the Sunday Herald that no final decision has been taken as yet. "KBR does not know at this time if the process will result in a disposition or a reduction of its interest in DML (Devonport)," said director Heather Browne.

But few believe that the MoD will allow this indecision to last long.

Analysts at Numis have already done their work on the implications of a £350m purchase of Devonport, which they say will boost earnings as the business makes some £40m profits a year.

But they warn that Babcock could fund the deal by asking shareholders to stump up the cash in a rights issue of new shares because of pressure on its balance sheet.

It is possible that the group could ease the burden by persuading Devonport's minority shareholders at Weir Group and Balfour Beatty to retain a stake in the business.

Brokers at Cazenove are also keen on a deal, claiming that it would add critical mass to the Rosyth business.

They say that the future of Rosyth, on the Forth, looks secure whatever happens to Devonport because of the success in the management in weaning the business away from its previous heavy dependence on naval ship support revenues.

However, failure to win the English yard could lead to pressure on the group to sell the business because of MoD insistence on industry rationalisation.

The obvious buyer would be BAE though the brokers believe that Rosyth would command a premium price of as much as £180m, counting benefits from the future workload in assembling the new aircraft carriers for the Royal Navy.

At present, Babcock is involved primarily in fairly routine maintenance work at its Forth and Clyde docks while Devonport's five specialist submarine basins are capable of major refits and maintenance for nuclear submarines.

While Babcock will still leave the building of vessels to heavyweights BAE and VT, analysts point out that the actual construction makes up only one-third of costs over their anticipated life span with much more profit to come from maintenance work and updates.

In addition, the group can expect hefty future payments to come from decommissioning work on the existing nuclear fleet.

While the group's defence work, including its estate management business, accounts for the lion's share of profits, directors will also point to good growth potential at the Glasgow-based First Engineering rail business. It is expected to be one of four majors to gain from Network Rail's move to streamline its list of nominated contractors.

There should also be good news from South Africa where the government has stepped up spending on infrastructure and is looking to outsource services.