BAE Systems reveals defensive qualities




By Harriet Mann | Thu, 18th February 2016 - 14:21

Share this


BAE Systems reveals defensive qualities
With last year's sales and profits taking off, BAE Systems (BA.) is now trying to overcome a hairy start to the year. Working in industries dictated by government purse strings can be unpredictable, but with budgets recovering and efforts to expand into commercial cyber and electronics markets yielding results, the defence giant's shares remain just a stone's throw from record highs.
Higher aircraft deliveries to Saudi Arabia, including 12 Typhoon fighter jets, helped sales jump 8% to £17.9 billion in 2015, although a slowdown in Typhoon production did nip £19 million off underlying operating profit to £1.69 billion.

Fewer impairments last year and lower amortisation of intangible assets meant operating profit jumped by 16% to £1.5 billion and adjusted earnings per share (EPS) rose by 6% to 40.2p. Strip out a tax benefit and EPS fell to 36.6p in 2015, although bosses reckon they'll rise by 5-10% in 2016.

BAE won work to develop the next warfare system for the US Air Force - upgrades are worth around $1 billion. It received major contracts from the Royal Navy, including the £1.3 billion Astute Class submarine deal, and will provide another 22 Hawk aircrafts to the Saudis.



Its commercial roll-out went well, with revenue from cyber business Applied Intelligence jumped by 31%. It's expected to generate good double-digit growth in 2016, too, and the cyber and intelligence division should improve margins to within a 7% to 9% range.

In terms of guidance elsewhere, sales in the US will be around 10% lower as America shifts its naval focus from the east coast to the west and toward China. Lower Typhoon deliveries will trim sales in the UK, too, although international sales should grow by 5% as Typhoon aircraft support increases.

But at least improving national defence budgets should underpin growth at BAE in the coming years. President Obama has lifted defence budget caps by $33 billion (£22 billion) and $23 billion for 2016 and 2017 respectively, and the UK plans to spend £178 billion on equipment and support over the next decade.

"Defence is never an easy business to be in but having come through a long period when governments have been cutting back on defence spending my view is that we have now past the bottom of the trough and are on the way back up," says private consultant Howard Wheeldon.

"BAE Systems has always placed strong emphasis on research and development investment and this in terms of meeting the innovation agenda requirements together with the very large level of existing support based business that the company have leave it well placed for many years ahead. That is not to suggest that there can be any degree of complacency or that it will, along with all other defence contractors, be expected to make itself even more efficient."

It's certainly been a turbulent two months for the defence and aerospace giant, after it started the year testing all-time highs. There have already been a number of spikes in the share price and 10% swings are not uncommon.

Sharp changes in sentiment have caused the shares to yo-yo within an 80p range, closely correlating the performance of the FTSE 100 index since mid-January. An initial 2.6% rally took the shares as high as 511p Thursday, near a one-month high. They currently trade on about 13 times forward earnings and yield over 4%.

SP bang on 200DMA if it doesn't bounce then may have to close gap @ 470p in a range.

Gap nearly closed.

Question now is do you remain short or gamble on a bounce to close the gap @ 510p?
Reluctant to buy any stocks until the referendum is sorted but not ruling out trading.

Wouldn't want to be buying yet, imo. As you say, too many negative events coming up to take the risk. Watching, but not yet buying.

Worth looking at these later in the month.

BAE SYSTEMS Plc (BA..L) Announced, in its AGM statement, that trading for the period has been consistent with management expectations at the time of the 2015 results announcement and the Group's outlook remains unchanged. In 2016, the Group's underlying earnings per share are expected to be approximately 5% to 10% higher than the adjusted underlying earnings per share of 36.6p in 2015. BAE Systems will announce its financial results for the half year ending 30 June 2016 on 28 July 2016.

Yeah yeah.. but they have said nothing about when their SP is going to bottom out and then when it's going back up!

No shit Sherlock :0)

BAE Systems (BA.): A Trump Play?

Of course, one of the keys of trading or investing in a technical way, or even otherwise, is to be aware of the ranges a stock or market may have. This is very much what we have in mind at the moment as far as BAE Systems is concerned, with the interest being provided by the way that Tuesday’s price action was a hammer candle off the floor of the range and a rising trend channel from October – it was also a failed gap fill buy signal. This is because the bottom of the February gap was at 468p and the low yesterday at 469p, before the stock revived. All of this is has to be regarded as very positive, even though overall stock market conditions appear rather flat. Ironically, the almost certain nomination of Donald Trump as the Republican candidate for President of the United States could mean there is plenty of new business for defence contractors like BAE Systems. Therefore, perhaps the best way forward here is to either buy any dips towards the 470p mark, or look to a momentum signal such as an end of day close back above the 200 day moving average at 479.75p. This is not too far away, but at least it would suggest that the bulls are properly back on track. The upside above the 200 day line is seen as being as high as the post February range at 520p, 1-2 months after such a moving average trigger.

Zac Mir's take today.

I was convinced that before sp would bounce that the gap would be closed, not the case on yesterdays evidence. If Zac Mir's theory is right that the fact that it failed to close the gap makes it bullish then at least i have learned something. If momentum continues then the next target to focus on is initially to close the gap @ 510p. Resistance 520p. Of course Armegeddon could occur at the open on Monday but it may not. Place your bets, watching.

It's probably turned the corner now to the upside.

Yep! (Kiss of death :0)

Money placed.. jobs a good-en -):

BAE Systems at Farnborough air show

StockMarketWire.com

BAE Systems will, this week, be participating in the Farnborough International Air Show. It is anticipated that such participation will include meeting with representatives from the investment community. No inside information will be provided at any such meetings.



Story provided by StockMarketWire.com

Hat tip to Zac Mir here he was spot on. Resistance 550p Trading Statement next Thursday 28th.

5 Dec Deutsche Bank 660.00 Buy
1 Dec Goldman Sachs 697.00 Conviction Buy
30 Nov Jefferies... 600.00 Buy
14 Nov JP Morgan... 675.00 Overweight
10 Nov JP Morgan... 675.00 Overweight
4 Nov Citigroup 630.00 Buy
3 Nov Morgan Stanley 630.00 Overweight
20 Oct Barclays... 430.00 Underweight
10 Oct JP Morgan... 655.00 Overweight
7 Oct Beaufort... N/A Buy
Broker Recommendations for BAE Systems

StockMarketWire.com
BAE Systems' order intake and backlog increased in 2016 whiles sales and underlying earnings also rose.

The group said sales increased by £1.1bn to £19.0bn, almost all of which was due to exchange translation.

Underlying EBITA increased to £1,905m, or 7% on a constant currency basis.

It said underlying earnings per share of 40.3p were 7% higher than adjusted 2015 underlying earnings per share of 37.8p, in line with guidance.

Order intake increased by £7.5bn to £22.4bn and the order backlog rose by £5.2bn to £42.0bn.

The dividend of 21.3p per share is up from 20.9p in 2015.

The group's financial performance measures defined in IFRS:

- Revenue increased by £1.0bn to £17.8bn, almost all of which was due to exchange translation.

- Operating profit increased to £1,742m, or 10% on a constant currency basis.

- Basic earnings per share of 28.8p.

- Net cash flow from operating activities increased by £421m to £1,229m.

Chief executive Ian King said: "2016 was a good year for BAE Systems. Our strategy is well defined; we have a large order backlog, long-term programme positions, strong programme execution and a well-balanced portfolio.

"With an improved outlook for defence budgets in a number of our markets, we are well placed to continue to generate attractive returns for shareholders."