BAE Systems PLC (LSE:BA.) gave a largely expected insight into the fundamental strength of the defence market in interims on Thursday.
Strong demand prompted the FTSE 100-listed supplier to raise full-year sales and earnings guidance by 2% and 1% respectively.
As Shore Capital analysts said in a note: “BAE Systems is a well-managed company with exposure to global defence markets, which have structural tailwinds.”
Such tailwinds, fuelled by war in Ukraine, Israel and heightened tensions elsewhere, saw sales rise across all of BAE’s electronic systems, platforms and services, air, maritime, and cyber segments over the six months to June.
However, shares were far from ignited by the strong update, having risen 0.8% by early afternoon and off the day’s top risers.
According to Shore Capital, this is due to shares in BAE already being fully valued, leading brokers at the bank to issue a ‘hold’ rating.
Though BAE did raise earnings guidance to between 12% and 14%, Shore Capital pointed out its own already-issued forecast for 13% growth this year.
Liberum analysts had also acknowledged that the results may provide little in the way of new information, especially considering BAE’s position as a “long-cycle business”.
For BAE, the next-generation Tempest jet and nuclear submarines for Australia under the AUKUS agreement were labelled as “key” long-term projects.
According to the company, momentum was maintained on both over the first half of the year, though neither is expected to be delivered until the 2030s.
Questions have been raised over the former, with BAE moving to reassure that the UK’s new Labour government classed defence as “a key contributor to economic growth” in the update.
This comes as a fresh review into the sector takes place, with recommendations and decisions on raising defence spending to 2.5% of gross domestic product set to be released next year.
Prime minister Keir Starmer had failed to guarantee the future of the Tempest project when quizzed at Farnborough International Airshow last week, leaving fears over its future as the review is carried out.
Analysts appeared unfazed by the uncertainty though, with Shore Capital reiterating demand was indeed still growing for BAE’s existing suite products after Thursday’s results.