BAE Systems on track to meet annual guidance
UK defence group BAE Systems said it was on track to meet 2021 guidance as its air, maritime, electronic systems and intelligence and security divisions continued to perform strongly.
The company on Wednesday said the operational performance underlined confidence in its guidance for top line growth and margin expansion this year, along with three-year cash targets.
“Our backlog and programme positions support our growth expectations in the coming years, and the pipeline of opportunities across all sectors remains strong. Demand for our capabilities remains high with order intake ahead of expectations,” the company said in a trading update.
BAE added there had been positive momentum in its platforms & services (US) unit, while combat vehicle production across multiple platforms continued to ramp up and on track to meet agreed delivery schedules.
US ship repair was improving following the Covid pandemic and other disruptions last year, it said in a trading update, and applied intelligence had a good start to the year with an improved performance.
"Strategically, our geographically diverse portfolio is aligned to growing defence budget areas; we're ramping up investment in self-funded R&D aligned to customer focus areas and we're leveraging our leading capabilities in evolving markets to ensure we're increasingly well placed to deliver for all our stakeholders," said chief executive Charles Woodburn.
BAE has forecast a year of top-line growth, with sales expected to grow by 5% to 7% when the impact of currency exchange is excluded, and underlying earnings to increase in excess of 10% excluding currency.
Free cash flow for 2021 was expected to be more than £1bn with a three-year target for 2021 - 2023 in excess of £4bn, the company said in March.
Lee Wild, head of equity strategy at interactive investor said many of BAE’s biggest customers plan to "pump even more cash into defence. The US, Germany, France and Australia are big opportunities for BAE".
"Strong free cash flow means BAE should continue returning cash to shareholders in the form of generous dividends for the foreseeable future."
However, Wild warned that concerns about BAE's pension deficit had not helped the share price with a possible new funding regime for final salary scheme being considered by the UK regulator.
"It is currently out for consultation, but a revised code could come into force towards the end of 2021. However, we’re told today that higher bond yields and asset values have driven ‘material reductions’ to both its funding and accounting deficits since year-end. It has also completed its UK pension deficit funding programme."
"BAE operates in an increasingly unfashionable sector, which helps explain the dull share price performance. There is a growing risk that BAE shares are excluded from more and more funds as an increasing number of managers use ethical considerations to make investment choices."
"No ESG fund will buy a company making war machines. While encouraging, there’s little in this update to suggest a significant improvement in the share price is imminent.”