Just prior to the release of full-year figures for BAE Systems (BA.), UK government officials were trying to convince their counterparts in Berlin to relax an embargo on military exports to Saudi Arabia which was imposed after the murder of journalist Jamal Khashoggi. BAE is the lead contractor for the pan-European consortium working on the Eurofighter Typhoon in Saudi Arabia, and is tasked with maintenance duties, including the supply of new parts.
Measures have been taken to minimise disruption to supply chain activities, but the issue underlines the inherent political risk associated with the aerospace/defence market. German officials have said that Saudi Arabia’s military activities in neighbouring Yemen will also have a bearing on any deliberations to ease restrictions, so given that the UK government signed military procurement deals worth around $2bn (£1.5bn) during Prince Mohammed bin Salman’s visit to London in March 2018, we might realistically expect a little more urgency on the regional diplomatic front by the Foreign Office.
Management will be praying for a speedy resolution, given the existing Memorandum of Intent signed between the UK and Saudi Arabia for the supply of another 48 Typhoons for the Desert Kingdom. The group has also commenced fulfilment on a Eurofighter/Hawk supply contract for the Qatar Emiri Air Force.
Elsewhere, much was made of Australia’s decision to select BAE as the preferred tenderer for the Hunter Class Frigate programme to deliver nine Future Frigates for the Royal Australian Navy. And the tub-thumping seems justified as the type 26 design is also being employed in Canada’s Surface Combatant programme.
So, even though sales and adjusted profits were down marginally on 2017, shareholders can take solace in an £8bn increase in order intake, which fed through to a 25 per cent increase in the backlog to £48.4bn.
Bloomberg consensus gives cash profits of £2.02bn for 2019, leading to adjusted EPS of 45.1p, against £1.93bn and 42.3p in 2018.
| BAE SYSTEMS (BA.) | ||||
| ORD PRICE: | 474p | MARKET VALUE: | £15.15bn | |
| TOUCH: | 473.4-474.2p | 12-MONTH HIGH: | 680p | LOW: 442p |
| DIVIDEND YIELD: | 4.7% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 174p* | NET DEBT: | 16% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 16.6 | 0.88 | 23.4 | 20.5 |
| 2015 | 17.9 | 1.09 | 29.0 | 20.9 |
| 2016 | 17.8 | 1.15 | 28.8 | 21.3 |
| 2017 (restated) | 17.2 | 1.07 | 26.0 | 21.8 |
| 2018 | 16.8 | 1.22 | 31.3 | 22.2 |
| % change | -2 | +14 | +20 | +2 |
| Ex-div: | 22 Apr | |||
| Payment: | 3 Jun | |||
| *Includes intangible assets of £10.7bn, or 333p a share | ||||
