- Company returning £1.4bn to shareholders through buybacks and dividends
- Big share price gain means potential for upside is more limited
BAE Systems (BA) said it was enjoying “another strong year” of order intake as governments around the world step up spending in response to greater geopolitical risks.
The company has booked another £10bn of orders since releasing half-year results, taking its total so far this year to £30bn.
The most notable award so far in the second half was the £3.9bn deal secured from the Ministry of Defence for the detailed design and long lead phase of the AUKUS nuclear submarine programme, which involves upgrading the company’s shipyard at Barrow-in-Furness in Cumbria. It also won several orders from the US military, including a $797mn (£651mn) deal to supply Armoured Multi-Purpose Vehicles and $800mn worth of contracts to supply and upgrade Bradley fighting vehicles.
"Order flow on new and existing programmes, renewals on incumbent positions and progress with our opportunity pipeline remains strong,” said BAE Systems’ chief executive, Charles Woodburn.
“These underpin our confidence and visibility for good top-line growth in the coming years,” he added.
The company stuck to the upgraded guidance given at the half-year stage – that sales should increase by around 5-7 per cent on last year’s figure of £23.3bn, while underlying operating profit should be 6-8 per cent higher than the £2.48bn earned in 2022. Free cash flow is likely to be slightly lower, though, given a series of investments being made and the £1.4bn it expects to return to investors in dividends and share buybacks over the course of this year.
As well as upgrading its submarines facilities, the company is developing a new shipbuilding facility in Glasgow for building frigates, increasing its munitions-making capacity and is spending more on R&D, as well as staffing up to meet demand – net employee numbers increased by 6 per cent in the first nine months.
BAE Systems’ shares were up 1 per cent in early trading and have gained more than 50 per cent over the past 12 months. As such, it is no longer the obvious bargain that it was prior to Russia’s invasion of Ukraine just under two years ago, with the company's shares now trading at just over 16 times FactSet consensus forecast earnings – well above their five-year average of roughly 12 times.
Its price/earnings ratio is below the valuations attracted by US peers such as Northrop Grumann (US:NOC) and General Dynamics (US:GD), though, and three-quarters of the analysts tracked by FactSet maintain a buy rating on the shares. However, the upside based on current earnings forecasts looks more limited.
