BAE down but not out

Obviously, the Saudi deal relieves a lot of uncertainty. BAE, which had not booked any profit on the 34 Typhoon jets already delivered, was able to include 6-7p per share of earnings in the 2013 numbers. It also means the company can now ramp up its £1bn share buyback programme. Before the results, £271m had been spent and finance boss Peter Lynas says BAE is already hoovering up more cheap stock. Delivering 10 Typhoons to the Saudis last year, alongside the one-off kicker from the re-pricing, beefed up UK underlying operating profit by 26 per cent to £879m. This does, however, make comparisons for the current year much tougher. Also impacted by ongoing budget cuts in the US, underlying EPS is expected to be 5-10 per cent lower in 2014.

A 3 per cent rise in underlying operating profit to £1.93bn was already less than expected. Unsurprisingly, the US division did the damage. An £865m write-down, split between the American intelligence and security and land and armaments businesses, made for ugly reported earnings, and even underlying profit in the region plunged by a third to £265m. The winding up of contracts for the Mine Resistant Ambush Protected vehicle and lower demand for restoration work on the Bradley fighting vehicle were blamed. A £48m charge at the support-solutions operation hurt, too, and management now predicts a drop in US sales of 10-15 per cent this year. In the land and armaments unit it could be up to a quarter.

RBC Capital Markets thinks EPS of around 40p is a “realistic earnings stream for the next couple of years".