The BAE Systems’ share price saw a dip of 4.5% to 699.2p in early afternoon trading on Wednesday in a move towards the lowest levels since the beginning of the Ukraine crisis.
BAE Systems is the largest arms contractor in Europe and saw their shares picked up by investors positioning for increased defence spending as a result of the conflict.
The start of the conflict coincided with the release of their 2021 results which revealed an increase in revenue and operating profit in 2021.
However, BAE’s share price has experienced a decline after diplomatic negotiations began this week, potentially quashing the stock’s attractiveness for investors realigning their portfolio’s for prolonged geopolitical tensions.
Should there be a ceasefire, the premium built into BAE’s shares could quickly evaporate and see the stock move back to around 600p, the level it was trading before the conflict.
Financial Results for 2021
Regardless, BAE Systems is a historically strong company and has sound fundamentals. The group saw its sales increase to £21.3 billion in 2021 compared to £20.8 billion in 2020.
The arms contractor reported an underlying EBIT of £2.2 billion against £2 billion in 2020 and a revenue of £19.5 billion in 2021 compared to £19.2 billion in 2020.
BAE Systems highlighted its operating profit of £2.3 billion in against £1.9 billion in 2020, and its order intake of £21.4 billion compared to £20.9 billion in 2020.
The arms group announced a dividend per share of 25.1p against 23.7p in 2020. BAE has almost always been an income investors favourite, and there is nothing in its latest results to suggest this will change.
BAE Systems Growth
BAE Systems reported an expected growth between 2-4% over 2022, attributed to electronic systems, air, maritime, cyber and intelligence sectors in the company.
The company recently acquired US-based Bohemia Interactive Simulations, which specialises in military training simulations, a point of interest as the Ukraine conflict continues.
The arms developer noted that 75% of expected sales are already in its order backlog for the coming year. This has the potential for upside surprises in future earnings releases.
BAE Systems shares
BAE Systems has strong fundamentals and is operating in favourable environment. The company has reported increased profits and dividend for 2021, and is projected to grow 2-4% over 2022 based on its current backorder portfolio.
However, the potential for the Ukraine war premium to be removed from the BAE share price means investors should be patient looking for an entry.
