13th Nov 2023 11:39
(Alliance News) - BAE Systems PLC on Monday shared a solid update following its half-year results, and Hargreaves Lansdown maintains the company is poised to benefit from rising defence budgets.
The defence, aerospace and security company said it is delivering "another year of good sales and earnings growth", as well as "strong cash flow generation".
It continues to expect sales growth of 5% to 7% in 2023 from the GBP23.26 billion sales achieved in 2022, with underlying earnings before interest and tax to grow 6% to 8% from GBP2.48 billion. BAE Systems anticipates a free cash flow of over GBP1.8 billion versus GBP1.95 billion in 2022.
That BAE Systems was able to reiterate its upgraded guidance is "something of a novelty" for most businesses, given the current uncertain environment, according to Hargreaves Lansdown equity analyst Aarin Chiekrie.
"BAE occupies a key space in the defence market, and another promising update proves why the group's so highly regarded in the defence space. With some of its biggest buyers, the UK, US and Europe, all expected to continue raising defence budgets over the coming years, the sky really is the limit for this jet-maker," he continued.
The company pointed to a strong opportunity pipeline, as well as strong order flow on new and existing programmes, and renewals on incumbent positions.
"Given the elevated threat environment, demand for BAE's products and services has remained strong with around GBP10 billion of order intakes since the half-year mark. That takes the year-to-date figure up to around GBP30 billion, and because these are typically long-cycle orders, with payments spread over several years, it gives BAE multi-year revenue visibility," said HL's Chiekrie.
BAE noted the regulatory process for its USD5.5 billion acquisition of Ball Aerospace was "progressing well", and is still targeting a completion date in the first half of next year.
Ball Aerospace provides mission-critical space systems and defence technologies across air, land and sea, and will serve to strengthen BAE's multi-domain portfolio. The business is headquartered in Colorado, with more than 5,200 employees.
Chiekrie said the buy seems like it "[complement] BAE's suite of products nicely, and add around USD2.2 billion to its topline, with a compound annual growth rate of around 10% in the next five years.
"And given the similarities between the two businesses, there's clear scope to streamline operations, cut costs and boost profit margins," he added.
Shares in BAE were up 0.4% at 1,108.00 pence each in London late on Monday morning.
By Elizabeth Winter, Alliance News senior markets reporter
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