BAE Systems share price jumps as it smashes expectations, boosted by Syria crisis

 
James Nickerson
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Ian King said BAE Systems has a well-balanced portfolio (Source: Getty)

BAE Systems has reported strong revenue growth with a solid order backlog as Saudi Arabia aircraft deliveries increased. The company's share price rose 1.98 per cent in early morning trading on the news.

The figures

BAE Systems reported full-year sales of £17.9bn, an increase of 7.8 per cent from 2014.

Underlying earnings before interest, tax and amortisation rose to £1.68bn, down from £1.7bn last year.

Meanwhile, the company reported operating profit of £1.5bn, up from £1.3bn for 2014.

BAE Systems has an order backlog of £36.8bn.

Dividend per share also rose to 20.9p in 2015, up from 20.5p for 2014.
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Why it's interesting

BAE Systems has topped market expectations on sales, profit and dividends, which will be encouraging for investors. The company said it had been largely lifted by increased aircraft deliveries to Saudi Arabia in the midst of the conflict in the Middle East.

The company added that it has a strong order backlog that indicates future profitability, with the prospect of further contracts.

Read more: BAE Systems hires Expro boss as chief operating officer

But analysts at Deutsche Bank said a key risk is slower than expected defence budget growth.

More concerning, despite the Saudi orders, may be that lower oil prices hurt government budgets, impacting orders from the Middle East.

A few months ago, the company announced job cuts and cut forecasts, scaling back Typhoon production, it has battled weaker defence budgets in recent times.

Read more: BAE Systems to cut more than 370 UK jobs

Still, the company said it is well placed to generate returns for shareholders as defence budgets recover. Business was given a boost by the war in Syria.

Andy Chambers, analyst at Edison Investment Research, said: “The upturn in defence spending is definitely welcome for BAE Systems as it once again reported a robust, if somewhat unexciting set of results.”

BAE anticipates underlying earnings per share to rise between five and 10 per cent in 2016.

This week it appointed a new chief operating officer, Charles Woodburn.

What BAE Systems said

Ian King, chief executive, said:

We have delivered another year of solid performance. BAE Systems has a large order backlog generated by a well-balanced portfolio of businesses serving the needs of customers in many of the world's larger accessible markets.

The group is well placed to continue to generate attractive returns for shareholders as defence budgets recover and our commercial adjacencies of cyber and commercial electronics continue to grow.

In short

With a strong order backlog, BAE Systems is set to deliver earnings growth in 2016.

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