Trump’s defence spending should help BAE fly
BAE Systems is in the business of providing large-scale military equipment such as fighter jets and aircraft carriers.
That means US President Donald Trump’s loosening of defence purse strings is good news.
And it isn’t just the US splashing out on defence – after some tough years BAE has finally seen several large orders come through.
Qatar, Canada and Australia have all called on BAE to boost their air forces and navies.
In last week’s full-year results, BAE said it expects the higher level of defence spending to be sustained in the near term.
Meanwhile, operating performance continued cruising in 2019. Underlying sales rose 7 per cent to £20.1billion and BAE’s preferred measure of profits increased 5 per cent to £2.1billion.
Cyber and Intelligence doesn’t move the dial at the moment, but it’s an increasingly important division.
That’s because modern warfare is changing. Combat is becoming more about smart platforms and electronic warfare.
We think the changing landscape is also driving BAE to bolster its second biggest division, Electronic Systems. It recorded sales of £4.4billion last year – and its current order book amounts to £6billion.
The planned £1.6billion acquisition of Collins Aerospace’s Military GPS business and Raytheon’s Airborne Tactical Radios division is set to grow this department further.
There are some points to keep in mind though.
The US administration hasn’t always been the most consistent on policy, and the provisional sale of 48 Typhoon fighter jets to Saudi Arabia for £10billion is under threat because of lingering political tension.
But overall, BAE is in a sturdy position, and its billions of pounds in orders removes a lot of short-term uncertainty. The shares now offer a prospective yield of 3.7 per cent.
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