Investors in BAE Systems PLC (LSE:BA.), like those of most defence companies, have been enjoying the rise in global tensions and the Russian invasion of Ukraine.
The FTSE 100-listed group, which this month won fighter jet contracts with the UK, Saudi Arabian and Israeli defence ministries and another with the UK for artillery shells, report its half-year results next week, following a strong performance in 2022 that made it the best-performing stock in the FTSE 100 index.
The company, which last reported a record order backlog of £58.9bn, is expected to show solid growth in sales, profits and earnings per share, despite currency headwinds and the impact of the pandemic.
"The shares have not been quite so strong in 2023 (as their modest gain leaves them ranked thirty-seventh at the time of writing) but they do trade within 10% of their all-time high and the overall Aerospace & Defence sector’s 33% advance in 2023 ranks it third of the thirty-nine sectors which comprise the FTSE 350 index," observed analysts at AJ Bell.
"War in Europe is one likely reason for this, while the investment case for BAE Systems largely rests on the company’s fat order backlog, double-digit operating margins, strong free cashflow and healthy track record of dividend growth."
Investors will also look for updates on the company's key projects, such as the F-35 stealth aircraft, the Typhoon fighter jet and the Dreadnought submarine, as well as its cash flow generation and shareholder returns.
BAE Systems has resumed its dividend growth and share buyback programme after a brief pause in 2020, with analysts have pencilled in a 9% increase in the dividend this year, while a £1.5bn share buyback scheme is running across 2022, 2023 and 2024.
Company guidance for the year was for sales growth of 3% to 5%, underlying operating profit of 4% to 6%, earnings per share growth of 5% to 7% and free cash flow of at least £1.2bn as part of its goal to generate £4 billion in free cash flow in the three-year period covering 2022 to 2024.