Analyst Note| Joachim Kotze, CFA |
Wide-moat BAE Systems is inching along and performing in line with expectations. Sales increased by 3% on an organic basis while EBIT grew by 4%, supported by a slight margin increase. We maintain our GBX 700 fair value estimate and believe shares are overvalued at current levels. As a popular income stock, the dividend increased by 5% and offers a current yield of 3.5%. We see greater capacity for shareholder returns through dividends and buybacks as the pension deficit swung into surplus during the half, eliminating the need for surplus payments.