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The share worth of the UK’s largest defence contractor, BAE Methods (LSE: BA.), suffered minor losses this morning (19 February) after posting its full-year 2024 outcomes.
It had began the yr with distinctive development, up 16% year-to-date when markets opened on Monday this week. Then this morning it introduced its full-year 2024 outcomes. Regardless of robust gross sales and income, some figures missed analyst expectations.
Though the information was optimistic general with a rise in money circulation steerage, the shares slipped 3% in early morning buying and selling.
The numbers
Immediately’s earnings report lined the 12-month interval ending 31 December 2024. The corporate reported robust efficiency with each gross sales and income up 14% to £28.3bn and £26.3bn, respectively.
Underlying earnings per share (EPS) elevated 10% to 68.5p (from 63.2p) and working revenue grew 4%. Underlying earnings earlier than curiosity and tax (EBIT) additionally elevated 14% to £3.2bn.
The ultimate dividend introduced for the yr was elevated by 11% from 18.5p to 20.6p, bringing the overall annual dividend as much as 33p, a ten% achieve from 30p in 2023. With a historical past of dependable dividend funds, the yield of two.4% makes it a pretty choice for income-focused traders like me.
Analysts anticipate continued gross sales development of between 7% to 9% and underlying EBIT development of 8% to 10%. That is based mostly on an expectation of accelerating demand for defence methods.
Enterprise developments
BAE just lately secured a $251m contract to help the US Navy’s AEGIS Fight System, one other gold star for its spectacular portfolio of worldwide defence initiatives. With defence budgets on the rise worldwide, such contracts assist guarantee the corporate is well-positioned for long-term development.
The brand new cope with the US Navy is simply the most recent in a sequence of wins. The deal grants BAE rights to offer important engineering and technical companies for the AEGIS system, a key part of US naval operations. Together with different important contracts secured in late 2024, it reinforces an already complete order backlog, promising income for years to come back.
Components that might hinder development
No funding is with out threat, and BAE isn’t any exception. A change in authorities defence budgets, provide chain disruptions or an increase in geopolitical tensions might influence its efficiency. It’s additionally vulnerable to shedding contracts to US-based rivals like Lockheed Martin or Northrop Grumman.
Not like BAE, these corporations have suffered inventory declines because the US election following an expectation of decrease defence spending. This might result in them competing extra aggressively for EU-based contracts, threatening BAE’s future income.
Whereas its valuation nonetheless seems good, it could possibly be shifting towards overbought territory. The share worth has been hovering in current months, so its price-to-earnings (P/E) ratio, at 21.8, is barely above the UK market common. This might restrict the potential for additional capital appreciation, regardless of forecasts predicting earnings development of 8.2% per yr going ahead.
Nevertheless, its diversified portfolio and world presence present some cushion towards these dangers.
With a powerful begin to 2025, high-profile contracts and optimistic analyst sentiment, I consider BAE stays a inventory price contemplating this yr. Its defensive nature provides stability to my portfolio and after immediately’s optimistic outcomes, I plan to proceed including to my holdings in 2025.
