BAE shares fall despite upbeat outlook

BAE Systems unveiled a bumper order book for 2022 alongside its solid full-year results. The defence contractor took in a record £37.1 billion of orders last year, with its backlog currently standing at £58.9 billion.

Revenues increased by 4.4% to £23.3 billion over the period. However, pre-tax profits fell slightly to £2 billion from £2.1 billion in the same period last year. Operating costs increased to £19.3 billion from £17.7 billion in 2021. Shares dipped 3% to 873.6p on Thursday but rebounded by 2% on Friday.

BAE upbeat on outlook

“Our diverse geographic footprint, deep customer relationships and highly relevant, leading defence technologies mean we’re well positioned to support national security requirements in an elevated threat environment,” chief executive Charles Woodburn told investors.

“Our record orders and financial performance give us confidence in delivering long-term growth and to continue investing in new technologies, facilities and thousands of highly skilled jobs, whilst increasing shareholder returns.”

The company says it expects another strong year in 2023, with sales forecast to increase by 3% to 5%, boosted by growth in its electronic systems business. Group finance director Brad Greve told investors he expects “further top-line growth, continued margin expansion, higher EPS” and that BAE is also increasing its rolling three-year cash targets.

BAE: Strong order book

BAE purchased Bohemia Interactive Simulations during the period, bolstering its US intelligence and security business. It also opened new facilities in New Hampshire, Iowa and Texas, while delivering its electronic warfare systems across the F-35, F15E, F-15EX and other aircraft systems. The company is designing energy management components for GE Aviation’s megawatt class hybrid electric propulsion system, which is used in NASA’s electrified powertrain flight demonstration project.

In addition, BAE is seeing its ship repair business recover from Covid-19 related disruption, while new orders continue to come in for its CV90 and BvS10 vehicles at Hägglunds. In addition, it has also delivered eight of its Eurofighter Typhoons to Qatar, while progress continues on the UK Dreadnought submarine programme, Australia’s Hunter Class frigates and HMS Anson begins sea trials this month.

Free cash flow of £2 billion was better than forecast, up £86 million from £1.86 million last year, while net debt fell to £2 billion from £2.2 billion in 2021.

Analysts at Berenberg Bank reiterated their buy recommendation, with a price target of 900p. However, those at Barclays think the shares could reach 1,020p.

BAE shares are up 45% over the past year, boosted by Russia’s war in the Ukraine and economic uncertainty. However, with the conflict likely to drag on, the shares are still worth holding and buying on weakness.

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