- Strong order intake
- 2022 guidance maintained
- Investing in R&D, new facilities
Defence firm BAE Systems (BA.) was on the front foot as its latest trading update showed increased military spending globally was translating into strong order intake for the company.
The shares were up 3.1% to 748.8p, extending its year-to-date gains to 35%, as BAE Systems noted many of the countries it operates in have either announced increases in defence spending or are planning to boost their spend ‘to address the elevated threat environment’.
Because defence programmes are long-lasting and involve multi-year contracts this is providing BAE with enhanced visibility on earnings. The company secured £18 billion worth of orders in the first half of 2022 and has booked a further £10 billion since then.
Despite rising input, raw material and labour costs, the company expects margins to grow into 2024 and it is also getting a boost from the strong dollar, helping to underpin guidance. Full-year revenue is expected to be up by 7% and 9% for the full year with earnings up between 10% and 12%.
RAMPING UP INVESTMENT AND SHAREHOLDER RETURNS
The company is ramping up investment in R&D and new facilities including fresh shipbuilding capacity at its site in Govan, Glasgow and a site in Cedar Rapids, Iowa.
A strong balance sheet and strong cash flow is also allowing the company to boost returns to shareholders with it completing 32% of a planned three-year £1.5 billion share buyback programme already.
Jefferies analyst Chloe Lemarie commented: ‘BAE’s trading update confirms that the group benefits from solid order momentum. Operating comments are solid, pointing at solid execution and easing labour tensions. We expect a positive reaction to the news, especially after recent share weakness.’
Lemarie notes the next catalyst will be the UK Autumn Statement on 17 November which will offer more ‘colour on UK spend’.
