BAE solid on underlying figures

Discount the foreign exchange effect and the picture is slightly brighter, with revenues flat on the 2013 interim. Management now believes that initial fears over the fall away in defence receipts were overdone. Some receipts linked to the Typhoon jet fighter have also been delayed until the second half of this year.

However, military and civil defence spending in the US and the UK has certainly become more targeted as budgets have been squeezed. So it's no surprise that BAE produced patchy returns across its divisions. UK Platforms & Services was the stand-out performer, with the only rise in underlying cash profits across the group.

Comparisons with 2013 are in any case distorted by the non-recurring benefit the group derived last year from the settlement of the Salam Typhoon deal with Saudi Arabia. The contracting issue, which was resolved in February, enabled BAE to book substantial earnings on 34 Typhoon jets that had already been delivered. There will be no such benefit for the 2014 year-end. Nevertheless, BAE has continued to entrench its position in Saudi Arabia by establishing local partnerships aimed at developing an indigenous defence industry in the desert Kingdom.

The group is now finalising contracts for £1.3bn of international orders, and is at an advanced stage of negotiations on a further £1bn in UK sole-source naval contracts. There could be a step up in domestic receipts. Whitehall is now committed to enhancing the Typhoon’s capability development, with flight trials planned for BAE’s active electronically scanned array (AESA) radar system. Hopes are also high for the Taranis unmanned combat air vehicle, following successful flight trials earlier this year.

JPMorgan Cazenove anticipates adjusted 2014 EPS of 36.6p, rising to 38.1p in 2015.