BAE Systems’ earnings jump after streamlining operations
The company has been affected by a German ban on exporting arms to Saudi Arabia imposed after the killing of Saudi journalist Jamal Khashoggi
London — BAE Systems, Britain's biggest defence company, said on Wednesday operational improvements in its first half drove a 9% rise in core earnings to £999m, underpinning its guidance for the full year.
The maker of Typhoon fighters, combat vehicles and Astute Class nuclear-powered fleet submarines stuck to its full-year earnings per share forecast, based on a $1.30/£ exchange rate, as the better operational performance helped offset restructuring charges.
BAE Systems said improvements in its maritime and combat vehicle operations helped drive a rise in first-half earnings against a backdrop of geopolitical uncertainty that has dampened hope for a major order from Saudi Arabia.
Britain's biggest defence company said on Wednesday it was sticking to a forecast for a mid-single digit rise in full-year earnings per share on 2018’s 42.9p, underpinned by an improved operational performance and a slightly lower tax rate.
CEO Charles Woodburn said that focusing on improving the performance of programmes such as combat vehicle production, was his top priority.
"The UK maritime sector is an area where we’ve seen some particular improvements, electronic systems in the US continues to perform very strongly," he said.
"I said (in 2018) that we were having some challenges ramping some of the combat vehicle programmes in the US and whilst we are making progress there that is still a huge area of focus for us."
The company has been affected by a German ban on exporting arms to Saudi Arabia imposed after the killing of Saudi journalist Jamal Khashoggi in October.
Woodburn said BAE had been "working closely with industry partners and the government to continue to fulfil our contractual support arrangements" with Saudi Arabia.
The export ban has put a question mark over a multibillion-pound deal to sell 48 Eurofighter Typhoon jets to Riyadh, built by a BAE-led consortium that also includes MTU Aero Engines and Airbus.
BAE reported a 9% rise in first-half earnings to £999m on sales up 4% on a constant currency basis to £9.4bn.
The company increased its interim dividend by just over 4% to 9.4p a share. Shares in the company were trading up 2% at 553p at midday.
Analysts at Deutsche Bank, who have a 690p a share target price, said BAE Systems’s 8.8 times 2021 enterprise value to earnings multiple looked undemanding.
"While we acknowledge that a number of uncertainties remain for BAE — challenges on arms sales to Saudi, potential change in UK government — we view these to be already priced in," they said.