21 February 2024
If you are covering BAE Systems latest results, please see the following comment from Jarek Pominkiewicz, equity research analyst at Quilter Cheviot:
"BAE Systems has delivered a strong set of financial results, with a notable 9% year-on-year increase in sales to £25.3 billion, surpassing consensus forecasts by 2%. Underlying Earnings Before Interest and Taxes (EBIT) also rose by 9%, aligning with market expectations. Despite a slight miss in underlying EBIT margin, down 20 basis points to 10.6% against consensus, this is not a concern, largely attributable to better-than-expected Maritime sales which are inherently lower-margin, cost-plus work.
"The company has once again demonstrated robust order intake, achieving a record backlog nearing £70 billion. This positions BAE Systems for a prolonged period of sustained growth, underpinned by a strong free cash flow of over £2.6 billion, 36% ahead of consensus, and a dividend increase of 11% to 30p – marking a 20th consecutive year of growth, a commendable track record.
"The resilience of the defence sector, where BAE Systems operates as the UK's leading defence contractor, has been extraordinary amidst broader economic challenges. The company's success is less about the pandemic's direct effects and more tied to the geopolitical landscape and increasing defence expenditure demands. With a diversified portfolio in combat systems, cybersecurity, and intelligence, BAE is well-placed to benefit from the escalating tensions between Russia and the West, driving the need for enhanced defence capabilities.
"In light of the changing geopolitical dynamics, particularly in Eastern Europe and the Baltic region, there is a growing recognition of the need to bolster defence spending. This is evident from the public discourse and commitments by NATO countries to increase their defence budgets beyond the 2% GDP target, in response to the heightened perception of threat. BAE Systems will benefit from this and is well positioned for growth."
