BAESY Bae Systems Plc (PK)

By Anthony O. Goriainoff

BAE Systems raised its full-year forecast after reporting a strong first-half, reflecting record order books as governments spend more on defense.

The U.K. defense-and-aerospace group said Wednesday that it now expects sales to rise between 5% and 7%, from previous guidance of 3% to 5%, driven by accelerated spending on the U.K. Dreadnought-class submarine program, as well as strong demand and operational performance across all sectors.

Underlying earnings before interest and taxes are expected to grow between 6% and 8%, from 4% to 6% previously, while underlying earnings per share guidance has been boosted to 10% to 12%, from 5% to 7%.

The company's order intake in the first half year ended June 30 was 21.1 billion pounds ($26.96 billion) compared with GBP18 billion for the same period a year earlier, resulting in a record order backlog of GBP66.2 billion. BAE said it expects a continued strong order flow for the rest of this year.

Pretax profit for the half year was GBP1.2 billion compared with GBP779 million for the first half of 2022.

Underlying earnings per share--the company's preferred metric, which strips out exceptional and other one-off items--rose to 29.6 pence a share from 24.5 pence a share in the year-prior period. Company-compiled underlying EPS consensus was in the 24.3 pence to 27.3 pence range.

BAE--which makes a range of military hardware and software, mainly in the U.S. and U.K.--generated revenue for the period of GBP11 billion compared with GBP9.74 billion the year before and a company-compiled consensus of between GBP11 billion and GBP11.39 billion.

The company added that it has launched a further share buyback program of up to GBP1.5 billion.

"With a record order backlog and good operational performance, we're well positioned to continue delivering sustained growth in the coming years, giving us confidence to continue investing in new technologies, facilities, highly-skilled jobs and in our local communities," Chief Executive Charles Woodburn said.

BAE said it has made significant long-term strategic progress with the Aukus trilateral defense agreement between Australia, the U.K. and the U.S., which will see Australia purchase its first nuclear-powered submarine-defense program.

The company is also in advanced talks with international partners on the Global Combat Air Program, it said, adding that it remains well aligned with U.S. national defense strategy priorities.

"These multi-national endeavors further highlight our global reach and the scale and longevity of our business," BAE said.

The company has increased its free cash guidance for 2023 by GBP600 million to over GBP1.8 billion following strong cash generation in the first half which it expects to continue throughout the year. The company reported free cashflow of GBP1.95 billion in 2022.

Government spending on defense has surged in the wake of Russia's invasion of Ukraine early last year, driven by the war there as well as longer-term threats.

Last month industry peer Thales--the French aerospace-and-defense group--narrowed its sales-growth guidance for the year after posting higher earnings in the first half, while Italian defense company Leonardo also confirmed its outlook.

Shares at 0809 GMT were up 52 pence, or 5.6%, at 985.20 pence.

Write to Anthony O. Goriainoff at anthony.orunagoriainoff@dowjones.com

(END) Dow Jones Newswires

August 02, 2023 04:55 ET (08:55 GMT)

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