SHAREHOLDERS took the glass half-empty view when interpreting BAE’s results, sending its shares down 4.2 per cent to 340.9p making it the FTSE’s largest faller yesterday.
BAE’s caution – warning sales would be lower this year as defence cuts in the UK and US hit home – gave jittery investors an excuse to sell.
But there are at least three reasons to see BAE’s glass as half-full. Firstly, while sales are down, margins are up on cost reductions and improving efficiency boding well going forward. Secondly, BAE’s pre-tax profit for 2010 was £1.49bn, compared to a £61m loss in 2009 – actually better than consensus expectations. Thirdly, its net debt is a mere £242m compared to the £1bn BAE originally guided to giving it ample scope to do buybacks or earnings accretive acquisitions.
With the shares trading on under ten times its earnings and yielding five per cent, now could be a good time to pick up the shares even cheaper.