ii view: record orders and progressive dividend for BAE Systems

Shares for this major defence contractor climbed 55% over 2022 and are up a further 6% during 2023. Buy, sell, or hold?

Full-year results to 31 December

• Sales up 4.4% to £23.3 billion
• Adjusted earnings up 9.5% to 55.5p per share
• Net debt down 6% to £2 billion
• Order book up 38% to £48.9 billion
• Final dividend of 16.6p per share
• Total dividend for the year up 7.6% to 27p per share

Guidance:

• Expects full year 2023 sales up between 3% to 5%
• Expects full year earnings per share up between 5% to 7%

Chief executive Charles Woodburn said: 

"We've delivered another year of strong results across the Group. Our diverse geographic footprint, deep customer relationships and highly relevant, leading defence technologies mean we're well positioned to support national security requirements in an elevated threat environment.

"Our record orders and financial performance give us confidence in delivering long-term growth and to continue investing in new technologies, facilities and thousands of highly skilled jobs, whilst increasing shareholder returns."

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ii round-up:

BAE Systems (LSE:BA.) is a major manufacturer of defence equipment. Its products include components for jet fighter aircraft including both the US F-35 and Europe’s Typhoon jet, navy ships and submarines, armoured vehicles, along with electronic systems such as radar and cyber & intelligence systems and services. 

For a round-up of its latest results announced on 23 February, please click here. 

ii view:

A member of the FTSE 100 index, BAE competes against rivals such as Babcock International Group (LSE:BAB) and Rolls-Royce Holdings (LSE:RR.). It employs more than 90,000 people across 40 countries. Aircraft related sales generate its biggest slug of revenues at around 38%, followed by electronic systems at 21%, naval or maritime equipment at 16%, platform and service sales including armoured vehicles at 15% and cyber and intelligence the balance at under 10%. 

Geographically, the US accounts for just over 40% of total sales, followed by the UK at close to 20%, Europe and Saudi Arabia at just over 10% each, and other countries including Australia and Qatar each at under 5% each.    

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For investors, the making of arms will prevent some from taking any interest on ethical grounds. Geopolitics and government appetite for spending regularly make demand volatile and difficult to predict, changes of government can come with budget implications, while rising costs and supply chain issues in the wake of the pandemic have also featured in recent years. 

On the upside, BAE offers diversity in both product and geographical terms. The war in Ukraine and current tensions between the West and Russia and China have helped push order intake over the year to a record $37.1 billion, while the dividend payment remains progressive, rising for more than 15 years consecutively. 

On balance, and while 2023 forecast sales below City hopes offer some caution, this major defence contractor looks to justify its continued place in many balanced and already diversified investment portfolios.

Positives: 

• Record order intake
• Forecast dividend yield of around 3%

Negatives:

• Arms manufacturing may generate ethical concerns
• Elevated government borrowing

The average rating of stock market analysts:

Buy