BAE Systems has hiked its profit and sales guidance, as the British defence giant cashes in on an increase in military spending amid growing geopolitical conflict.
The London-listed group said revenue in the first six months of the year soared 11 per cent to £14.6billion and earnings were up 13 per cent to £1.5billionn.
Defence firms including BAE Systems have been boosted by a race to rearm across Europe since Russia’s invasion of Ukraine three years ago.
And it is set to benefit further after Nato members pledged to increase military spending to 5 per cent by 2035.
‘[The] Nato summit of a few weeks ago and the consensus [to increase defence spending] really underpins our confidence in the long term,’ BAE chief executive Charles Woodburn said.
But shares in the FTSE 100 giant dipped more than 2 per cent on Wednesday morning as investors were disappointed by the scale of the upgrade.
BAE Systems CEO Charles Woodburn (right), with Business, Energy and Industrial Strategy Secretary Jonathan Reynolds
Sales are expected to grow by 8 to 10 per cent in 2025, compared to a previous forecast of 7 to 9 per cent.
Profit guidance has been upped from 8 to 10 per cent to between 9 and 11 per cent.
‘Investors have lofty expectations for all defence stocks and they might have been banking on a significant upgrade to earnings guidance,’ Russ Mould, investment director at AJ Bell, said.
Woodburn said there might have been ‘a bit of profit taking going on’ on Wednesday but added that he is ‘confident in the long-term outlook’.
BAE Systems shares are up more than 50 per cent so far this year.
BAE received £13.2billion worth of new orders in the first six months of the year, taking its order book to £75billion.
And it has accelerated investment in UK facilities due to the ‘deteriorating threat environment here in Europe,’ Woodburn said.
In the first six months of the year, it expanded its Glasgow shipbuilding site and opened a new £25million artillery factory in Sheffield. The company is on track to recruit 2,400 graduates and apprentices in the UK this year.
‘We don’t ourselves struggle to attract talent’, Woodburn said, but warned that ‘some of our supply chain may experience more challenges’.
‘As the UK, across Europe and the US look to rearm and increase the pace of that, inevitably there are going to be supply chain challenges,’ he said.
‘We’ve had quite some shocks to supply chain that we have been able to navigate through,’ Woodburn said, citing the Covid-19 pandemic and the start of Russia’s war in Ukraine.
‘It does require very active management [but] it’s not something I think we can’t manage,’ he said.
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
InvestEngine
InvestEngine
Account and trading fee-free ETF investing
Trading 212
Trading 212
Free share dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.