BAE Systems is on track to meet its full year targets, ignoring the effect of exchange rates. This includes 4-6% underlying operating profit growth and free cash flow of at least £1bn.
The group has secured £10bn in order intakes since the half year, taking the total so far to £28bn. BAE also highlighted that many of the countries it operates in are increasing their defence spending, which is expected to result in further long-term contracts for the group.
Recruitment constraints have started to ease and there has been no “material” impact from higher energy prices. The group highlighted it’s continuing to experience supply chain issues, especially in areas that rely on microelectronics.
BAE said its balance sheet remains strong and there are no major debt maturities in the near-term. £484m of the £1.5bn share buyback programme has been completed.
Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown:
“There are a few things that BAE is beholden to, and one of those is government defence budgets. We’ve learned today that many of the countries the defence giant operates in are upping their defence spending in response to the more threating geopolitical climate. This should feed into a sticky source of revenue for the group. New government contracts tend to be long-term in nature, giving BAE exceptional visibility over demand, which is hard to find in today’s uncertain environment. Since the half year the defence group has seen £10bn of order intakes and profits on a constant currency are expected to come in in-line with expectations.
The group is still grappling with supply chain issues, especially in areas of the business that rely on microelectronics. For now, BAE is able to offset the worst of these issues, operating in a sector with high barriers to entry means margins can enjoy a certain level of protection. However, an extremely protracted bout of disruption could cause pain.
There are of course higher risks associated with investing in defence, not least that the sector is excluded from some institutional products, which caps investor interest.”
