ii view: orders take off at bullish BAE Systems

10-month trading update to 31 October 

• Order intake of £27.2 billion, up from £25 billion this time last year

Guidance:

• Continues to expect growth in full-year 2025 sales of between 8% and 10%
• Continues to expect growth in full-year adjusted profit (EBIT) of between 9% and 11%

Chief executive Charles Woodburn said: 

"We continue to deliver strong financial and operational performance in the second half of the year, underpinning the full-year guidance we upgraded in July.

"With a strong order backlog, established positions on key programmes and continued investment to support our future growth, we're confident in the outlook for our business."

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 ii round-up:

BAE Systems (LSE:BA.) today reported increased order intake compared to the same time last year, swelled by orders including 20 new Typhoon fighter jets for Turkey worth £4 billion. 

Orders for the 10 months to late October totalled £27.2 billion, up from new orders received of £25 billion in late October last year.  

Shares in the FTSE 100 company were little changed in UK trading having come into this latest news up by more than a half so far in 2025. The FTSE 100 index is up by just over a fifth year-to-date. Fellow defence equipment provider Babcock International Group (LSE:BAB) has more than doubled in 2025. 

BAE’s involvement includes programmes for Dreadnought and Astute Class submarines, Type 26 and Hunter Class frigates, Typhoon and F-35 jets, electronic warfare systems, combat vehicles, drones, missile systems and many others.

Other orders received since the end of the first half period included $3.3 billion worth of electronic systems and $1.7 billion for US combat vehicles. 

BAE maintained previously raised guidance for growth in annual sales of up to 10%, potentially pushing growth in annual adjusted profits of up to 11%. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on BAE shares post the news. Results for the year to 31 December are scheduled for 18 February. 

ii view:

Headquartered in London, BAE employs over 105,000 people across more than 40 countries. Electronic systems and including Space and Mission Systems made most profits during 2024 at 31%. That was followed by aircraft products at 30%, maritime equipment 15%, platforms & services including vehicles and ammunition at 14%, and Cyber & Intelligence products the balance.

Geographically, the US proved its biggest customer in 2024 at almost 48% of sales. The UK was next at close to 27%, with other big customers including Saudi Arabia at 11% and Australia at 4%. Global competitors include Rheinmetall AG (XETRA:RHM), Northrop Grumman Corp (NYSE:NOC) and Lockheed Martin Corp (NYSE:LMT).

For investors, ethical concerns given the manufacture of weapons, may deter some investors from buying the shares. A forecast price/earnings ratio above the three- and 10-year averages may suggests the shares are not obviously cheap. President Trump’s desire to negotiate peace settlements continues, while historically defence spending has been easier to cut than that of health or education. 

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For the positives, order intake remains robust. A series of European governments, including the UK, have previously promised to increase defence spending given the heightened threat from Russia and elsewhere. Diversity of both product and geographical region exists, while the dividend payment has risen consecutively for more than 20 years leaving the shares on  forecast dividend yield of around 2%.

For now, and despite ongoing risks, a consensus analyst fair value estimate above £21 per share suggests continuing longer-term optimism in the City. 

Positives: 

• Diversity of products and geographical sales
• Progressive dividend policy

Negatives:

• Arms manufacturing may generate ethical concerns
• Subject to government finances

The average rating of stock market analysts:

Buy