BAE bullish as defence spending rises

BAE Systems is on course for a “very strong year” of new orders and has held out the prospect of further growth from increased government spending as geopolitical tensions intensify in the wake of the war in Ukraine.

The FTSE 100 group said on Tuesday it had secured a further £10bn worth of orders since the half year, on top of £18bn secured in the first six months of the year.

New orders included a £4.2bn contract to build five more Type 26 frigates for the Royal Navy, announced earlier by UK prime minister Rishi Sunak. The contract will support 1,700 jobs at BAE’s yards in Scotland.

BAE, whose 85,000 employees build everything from warships to Eurofighter Typhoon jets, stuck to its guidance for the full year for underlying earnings per share to rise 4 to 6 per cent this year on a constant currency basis.

The company generates a significant portion of its earnings in dollars and is benefiting from the strong US currency. It is forecasting EPS growth of 11 to 13 per cent on an actual basis, including the tailwind from the strong dollar.

It has completed £484mn of a £1.5bn three-year share buyback programme, which it announced in its interim earnings report in July.

Europe’s biggest defence contractor said it is working through “supply chain challenges”, especially in those areas reliant on microelectronics, but said the recruitment picture had started to improve since the half year. BAE, like many British manufacturers, has struggled recently to recruit enough engineers. The company said it did not see a material impact from higher energy prices.

“Our operational performance year to date underlines our confidence in the full-year group guidance for top line growth and margin expansion as well as our cash flow targets,” said Charles Woodburn, chief executive.

“We see sales growth coming from all sectors and opportunities to further enhance the medium-term outlook as our customers address the elevated threat environment,” he added.

BAE shares rose more than 2 per cent in early London trading, extending their gains for the year beyond 35 per cent.

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