ii view: time to take profits at BAE Systems?

First-half results to 30 June 

• Sales up 11% to £14.6 billion
• Adjusted profit (EBIT) up 13% to £1.55 billion
• Order intake of £13.2 billion, down from £15.1 billion in H1 2024
• Interim dividend up 9% to 13.5p per share
• Net debt (excluding lease liabilities) up 13% to £5.57 billion 

Guidance:

• Now expects growth in full-year 2025 sales of between 8% and 10%, up from a previous 7% to 9%
• Now expects growth in full-year adjusted profit (EBIT) of between 9% and 11%, up from a previous 8% to 10%

Chief executive Charles Woodburn said: “Our teams have delivered another strong operational and financial performance in the first half of the year, giving us the confidence to upgrade our guidance. 

“In this heightened global threat environment, we continue to deliver mission-critical capabilities to armed forces around the world and invest in our people, technologies and facilities to drive the improved efficiency, capacity and agility needed to meet the increasing demand for our highly relevant products and services. 

“The breadth and depth of our geographic and product portfolio, together with our trusted track record of delivery, strengthen our confidence in the positive momentum of our business."

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ii round-up:

BAE Systems (LSE:BA.) is a major manufacturer of defence equipment.

Group 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.

For a round-up of its latest results announced on 30 July, please click here. 

ii view:

BAE employs over 105,000 people across more than 40 countries. Electronic systems, including night vision equipment, made most profits during 2024 at 31%. That was followed by aircraft products at 30%, maritime equipment at 15%, platforms & services, including vehicles and ammunition, at 14%, and cyber & intelligence products the balance.

Geographically, the US proved its biggest customer during 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 rivals include Rheinmetall AG (XETRA:RHM), Lockheed Martin Corp (NYSE:LMT) and Northrop Grumman Corp (NYSE:NOC).

For investors, ethical concerns, given the making of weapons, may deter some people from buying the shares. A slowing in order take to £13.2 billion from £15.1 billion in H1 2024 is not to be ignored. An estimated price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap, while President Donald Trump’s desire to negotiate peace settlements continues.  

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On the upside, BAE upped sales and profit hopes for the current full year, with management flagging increased confidence in the momentum and duration of growth. A series of European governments, including the UK’s, have previously promised to up defence spending going forwards given the heightened threat from Russia. Diversity of both product and geographical region exists, while the dividend payment has risen consecutively for more than 20 years leaving the shares on an estimated future yield of around 2%.

In all, and despite ongoing risks, a consensus analyst estimate of fair value sat at over £20 per share points to 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