BAE Systems PLC (LSE:BA.) unveiled better-than-expected profit on Wednesday, thanks to record orders as global tensions mount on the back of conflict in Europe and the Middle East.
According to analysts, it was the UK defence firm’s large exposure to the US which proved really vital for BAE’s strong results.
This exposure is only set to grow meanwhile, after BAE completed the acquisition of Ball Aerospace for £4.4 billion just last week.
“On an absolute basis, US military spending trumps any other country in the world,” Hargreaves Lansdown’s Aarin Chiekrie pointed out following the results.
“Having a large exposure here is proving very beneficial and has helped the group.”
Indeed, of total sales worth £25.28 billion for the year, US orders accounted for £10.67 billion, or 42%.
This included through new contracts for US-based ammunition production, as well as orders for heavy-duty equipment such as F-35 Lightning II jets and the US, UK and Australia’s new nuclear submarines.
Other BAE-built equipment, such as the Bradley fighting vehicle and M777 artillery pieces, have been used on operations in Ukraine following donations from the likes of the US, further pushing orders.
“At a tactical level, the conflict in Ukraine is highlighting the importance of a number of these key technologies,” BAE said in its results.
Such backing for Ukraine by western nations has therefore proved beneficial for BAE, with the UK and Europe the next largest sources of orders.
Given this fact, which has coincided with an uptick in defence spending, BAE is looking to embed itself further into the likes of the US market to meet such demand, analysts noted.
Chiekrie pointed to the acquisition of Ball as a clear sign of this ambition, for instance, with BAE itself saying the takeover of the Colorado-headquartered components manufacturer would help increase its “exposure to high-priority areas of the US Department of Defense budget”.
“The new business should enhance top-line growth and margins, contributing positively to the group’s expectations for sales and profits to rise at double-digit rates this year,” Chiekrie said.
“Against a backdrop of elevated global tensions and rising military budgets, the sky’s looking bright for this jet-maker.”