BAE Systems: investors book gains after robust year of growth

BAE Systems shares were weaker on Wednesday after the defence company announced very respectable revenue and profit increases in 2023.

The company has been the beneficiary of increased defence spending globally, especially by the US, and sales rose 9% in 2023 to £25.3bn while underlying operating profit rose 9% to £2.7bn.

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Despite BAE System releasing robust numbers for 2023, shares were trading down 2.5% at the time of writing on Wednesday. This is likely a result of traders booking gains in the stock, taking a ‘buy the rumour, sell the fact’ approach to BAE shares, which are up 34% over the past year amid expectations of strong defense spending.

“BAE Systems continues to move from strength to strength, with both its full-year revenue and underlying operating profits coming in ahead of its prior guidance,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

“The group manufactures heavy-duty military equipment like fighter jets, aircraft and submarines, and recent global events are keeping demand for its products strong. Despite being a UK-based company, a whopping 42% of its sales came from the US last year, making it the largest single contributor. On an absolute basis, US military spending trumps any other country in the world, so having a large exposure here is proving very beneficial and has helped the group bring in a record £37.7bn worth of orders in 2023.”

BAE Systems now has a record £69.8bn backlog driven by order intake of £37.7bn during 2023.

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“The record order intake and backlog also gives the impression that there is another solid year of growth to come from the firm in 2024 and with a bump up in the dividend and more buybacks coming, shareholders will unlikely be going anywhere given the handsome returns the shares have already generated,” said Adam Vettese, market analyst at eToro.

After announcing a £1.5bn share buyback in August last year, BAE Systems increased shareholder returns by hiking the dividend by 11.1% to 30p for the full year.

At the current share price of 1,222p, BAE Systems’ dividend yields 2.4%.

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