Our second company this week combines an easily understood business model, defensive characteristics and a clear growth strategy with an undemanding valuation. We also look at why the long-term outlook for BAE Systems (BA.) remains solid.
BAE can be a very difficult company for investors to get their heads around. Not only are there all the different products, markets and technologies to try and understand, but the movements of cash in and out of the business can make understanding its financial performance far from easy.
Whilst cash flows are lumpy, BAE’s growing profits are expected to lead to improving returns on capital employed (ROCE) and returns on operating capital employed (ROOCE). A forecast ROCE of 13 per cent for 2024 suggests that BAE can grow whilst making acceptable returns for its investors. A ROOCE of nearly 18 per cent is the hallmark of a very good business which should reassure existing and potential shareholders.
