There’s no masking the impact of government budget cuts both here and in the US on BAE’s business - it’s huge. But there was little in the defence contractor’s figures that we didn’t already know, and decent growth in the dividend reinforces the shares status as an income buy.
Perhaps the biggest surprise was the size of the decline in sales. BAE blamed the miss on a 40 per cent slump in sales at its Land & Armaments business to £3.5bn, mostly due to falling demand for Bradley fighting vehicles following the US withdrawal from Iraq and winding down of operations in Afghanistan. Together with a completed order for army trucks, sales at the Platforms & Services (US) division dropped 31 per cent to £5.3bn. This year will be tough, too. Expect Land & Armaments sales to decline to around $5bn (£3.1bn) in 2012, warns the defence contractor. Completing the F-22 Raptor jet and a flood at its Johnson City facility also hurt sales at electronic warfare systems.
A further £500m of annual sales have been lost in the UK, only partly mitigated by job cuts and other cost savings. And failing to nail down changes to some contracts on its mammoth Salam Typhoon programme in Saudi Arabia has cost BAE even more. Saudi sits within BAE’s Platforms & Services (International) division where revenue fell 12 per cent to £3.8bn.
Playing down expectations for 2012, management's guidance is for “little” sales growth overall this year. Still there should be a “modest” lift to underlying earnings if Salam talks go well, and international sales are tipped to jump by at least 25 per cent. Much will also depend on the new cyber & intelligence unit where revenues grew 16 per cent to £1.4bn. Given the risks, this is one area the government won’t be cutting back.
Investec’s estimates are under review, but for now the broker expects 2012 adjusted EPS of 40.1p (2011: 39.7p excluding R&D tax benefit).
BAE SYSTEMS (BA.) | ||||
|---|---|---|---|---|
| ORD PRICE: | 322p | MARKET VALUE: | £10.4bn | |
| TOUCH: | 321-322p | 12-MONTH HIGH: | 357p | LOW: 241p |
| DIVIDEND YIELD: | 5.8% | PE RATIO: | 9 | |
| NET ASSET VALUE | 131p* | NET DEBT: | 33% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 15.7 | 1.27 | 26.6 | 12.8 |
| 2008 | 18.5 | 2.37 | 49.6 | 14.5 |
| 2009 | 22.0 | 0.27 | -1.9 | 16.0 |
| 2010 | 22.3 | 1.41 | 30.5 | 17.5 |
| 2011 | 19.2 | 1.47 | 36.9 | 18.8 |
| % change | -14 | +4 | +21 | +7 |
Ex-div: 18 Apr Payment: 1 Jun *Includes intangible assets of £11.5bn, or 354p per share | ||||
