US austerity to hinder UK corporates

Elizabeth Fournier
WITH cuts of up to $850bn now priced into the US national security budget over the next decade, UK companies with exposure to the defence industry are feeling the effects.

Defence giant BAE Systems has been hit particularly hard, with a downgrade from Oriel Securities yesterday contributing to a five per cent drop in its share price since last week’s close.

Forty-three per cent of BAE’s revenues in the first half of this year came from the orders into the US, and the Department of Defense was responsible for BAE’s 10 most lucrative contracts in 2010, which ranged from $102m to $321m.

After the Oriel downgrade analysts at RBS rallied behind the group, saying cuts had been anticipated and were already priced into the markets.

“BAE’s exposure to any incremental negative news is more modest than its US peers,” said RBS in a note.

Qinetiq, which supplies military technology to the US, also addressed concerns in a management statement yesterday, admitting that “ongoing budget pressures from government programmes to reduce fiscal deficits continue to generate uncertainty and delays in orders”.

But the group said it still expects to perform in line with its previous forecasts for 2011.

The mixed statement seemed to reassure markets, with Qinetiq shares down just 0.45 per cent yesterday.