BAE Systems launches £500m share buyback and hikes dividend as earnings jump

London  — British defence company BAE Systems lifted annual guidance, raised its dividend and launched a new share buyback plan, after saying its programmes to build submarines, fighter jets and other equipment were all running smoothly.

BAE, whose main customers are the US, Britain and Saudi Arabia, said it would hike its dividend to 9.9p, 5% up on 2020’s interim payout, and would start a £500m share buyback over the next 12 months.

The plan to raise investor returns, which help lift the company’s shares by more than 2% in early business, stands out at a time when many companies have suspended dividends to conserve cash and ride out the impact of the Covid-19 crisis.

The stock is up 15% over the past three months.

Defence has been largely unaffected by the pandemic, with governments sticking to military and security commitments, and in some cases raising them.

For the full-year, BAE said it expected underlying earnings per share to grow by 3% to 5% over 2020's result, even if the pound continued to strengthen against the dollar, representing an improvement on previous forecasts.

BAE said action it took in 2020 to accelerate payments for its British pension deficit helped its finances, while its unit supplying commercial aviation started to recover in the period and its cyber security business also improved.

Agency Partners analyst Nick Cunningham said that the dividend payout was better than expected and noted the buyback was BAE's first since 2014.

BAE Systems said its confidence had been boosted by progress in ongoing projects, as it delivered electronic warfare systems for the F-35 fighter jet programme, made automation improvements to help ramp up production of combat vehicles and it approached full output of F-35 rear fuselages.

In its first-half to June 30, BAE’s underlying earnings per share rose 25% to 21.9p in the period, beating consensus forecasts of 20.0p.

On Thursday, Britain awarded a £250m contract linked to Tempest, its project to build a new fighter jet that is led by BAE Systems with help from Rolls-Royce, Leonardo and other partners.

BAE signed the contract on Thursday, which officially marks the start of the programme's concept and assessment phase. Britain wants the new jet to replace the Eurofighter Typhoon from 2040 while also preserving Britain’ s independent military jet capability and providing skilled jobs.

Reuters