Analysts at Berenberg winged shares in BAE Systems PLC (LON:BA) today, downgrading their rating to ‘hold’ from ‘buy’ following a recent sales briefing with the defence firm’s management.
In a note to clients, the German bank’s analysts also lowered their price target for the FTSE 100-listed firm to 600p from 632p, with the stock trading at 621p today, down 9.5p, or 1.5% on last night’s close.
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The analysts said the downgrade reflects a “reassessment of the likelihood and timing of key export wins, and our expectation of no organic revenue growth and modest earnings progression in the next two years.“
They added: “In the absence of a firm export order materialising for the Typhoon programme, we now forecast FY 2018/19 delivery rates falling c50% yoy from 20 in 2017 to 11 and five aircraft respectively.”
The analysts said: “This may result in a further slowdown of delivery rates which could generate negative sentiment around BAE’s largest franchise programme.”
EPS estimates reduced
They have cut their full year earnings per share estimates by 1%/6%/10% respectively for 2017, 2018, 2019 to reflect the lack of organic growth, principally driven by the step-down in their Typhoon production forecast, and weakness in the Applied Intelligence and US ship repair businesses.
The analysts noted that BAE shares currently trade on a full year 2019 EV/EBIT multiple of 13 times, a 10% discount to US peers which, in their view, means the stock looks “fully valued at present given the near-term outlook.”