Analyst Note| Joachim Kotze |
Wide-moat BAE Systems maintains its full year guidance as program execution tracks according to expectations. The group anticipates midpoint revenue and EBIT growth for 2021 of 4% and 7%, respectively, with free cash flow generation in excess of GBP 1 billion. Medium-term free cash flow guidance of more than GBP 4 billion equates to nearly 25% of current market value. BAE Systems has been relatively unaffected by the supply chain issues seen elsewhere in the industry as the group enjoys exposure to long-term programs allowing it to manage supplier lead times more effectively. The group’s broad exposure to platforms and geographies allows for stable and predictable cash flows, underpinned by resilient defense demand and long-term multi-decade contracts. We maintain our GBX 595 (ADR: $32.50) fair value estimate, with shares in fair value territory. A relatively secure 4.2% gross dividend yield makes the stock particularly attractive to income investors.