Predictably, the slump in defence spending both in America and the UK put a hole in profits at
Underlying cash profit fell 6 per cent to £1.89bn and adjusted EPS of 38.9p was just 2 per cent less than the previous year. Hefty prepayments from Saudi and Oman left BAE with £387m of net cash, too, and order intake from outside the US and UK more than doubled to £11.2bn. However, BAE still did 41 per cent of its business in the States last year and sales at the platform & services (US) division tumbled 14 per cent after a slump in demand for armoured vehicles – BAE predicts a further 10 per cent slide in 2013.
UK sales will jump 25 per cent, though, if BAE starts delivering planes to the Saudis again, generating “modest” growth in group earnings - UBS forecasts adjusted EPS of 43.9p this year. If not, and full sequestration does occur in the US on 1 March, BAE admits sales may plummet up to 15 per cent. It’s already slashing costs to protect the bottom line and thousands more jobs could go.
|BAE SYSTEMS (BA.)|
|ORD PRICE:||349p||MARKET VALUE:||£ 11.3bn|
|TOUCH:||348-349p||12-MONTH HIGH:||367p||LOW: 268p|
|DIVIDEND YIELD:||5.6%||PE RATIO:||11|
|NET ASSET VALUE||114p*||NET CASH:||£387m|
BAE is doing all it can to mitigate shrinking military budgets and the share buy back oozes confidence, while a forward PE ratio of 8 is really low, and there’s a big dividend, too. Yet, with sequestration possibly days away, we repeat our hold advice.
Last IC view: Hold, 326p, 8 October 2012