BAE Systems PLC should well benefit from an anticipated increase in defence spending across Europe, though its growth outlook only looks modest for now, analysts have said.
Following results on results earlier on Wednesday, Shore Capital noted that results largely matched expectations and that guidance was modest.
BAE had reported a 14% jump in underlying pre-tax earnings to £3.0 billion on a 15% uptick in sales to £28.3 billion for the year to December 31.
According to Shore Cap, sales were as anticipated, while profit and an £88 million drop in free cash flow to £2.5 billion slightly beat forecasts.
Guidance for a 7-9% increase in sales and 8-10% rise in profit through 2025 was dubbed “modest” by analysts though, after talk of hiked defence spending in Europe sent shares across the sector rallying earlier in the week.
“Whilst BAE is a beneficiary of higher defence spending, its size and exposure to long-term contracts, restrict its ability to rapidly grow the topline,” the analysts said, repeating a ‘hold’ rating and 1,337p share price target.
Speculation over rising security budgets had been sparked as European leaders held crisis talks in response to US efforts to end the war in Ukraine on Monday.
Shares gained 1.7% to sit at 1,359.19p on Wednesday.