BAE Systems Earnings: Strong Set of Results, Guidance Update, and Increased Shareholder Remuneration

Wide-moat BAE Systems BA. upgraded full-year guidance on the back of another strong set of results for first-half 2023, with a record backlog of GBP 66 billion, representing almost 3 times annual sales. We are maintaining our fair value estimate.

On a constant-currency basis, the company achieved 11% sales growth, with all sectors contributing to growth in the first half, and the maritime sector experienced the highest sales growth in relative terms.

EBIT grew at a slightly lower rate of 10% versus first-half 2022, supported by the air sector’s EBIT margin increase of 160 basis points. The lower EBIT increase compared with the sales increase is due to the majority of the maritime sector’s growth, driven by accelerated funding of the Dreadnought program, which trades in a regulated profit environment. The cyber and intelligence sector experienced a decline in margin as well, reflecting the additional investments being made in the business.

Strong free cash flow of GBP 1,070 million was driven by operational performance and advance payments, and it’s expected to be maintained throughout the year.

BAE Systems maintains a strong balance sheet, with a cash position of GBP 3.2 billion and a net pension position in an accounting surplus.

The company’s strong backlog of multiyear programs and its defense budget expansion outlook support the upgraded full-year group guidance for sales, underlying EBIT, underlying earnings per share, and free cash flow, as well as the 11% dividend per share increase in first-half 2023 versus first-half 2022 and the approval of a new GBP 1.5 billion share buyback program.