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1. Company Snapshot

1.a. Company Description

BAE Systems plc provides defense, aerospace, and security solutions worldwide.The company operates through five segments: Electronic Systems, Cyber & Intelligence, Platforms & Services (US), Air, and Maritime.The Electronic Systems segment offers electronic warfare systems, navigation systems, electro-optical sensors, military and commercial digital engine and flight controls, precision guidance and seeker solutions, military communication systems and data links, persistent surveillance systems, space electronics, and electric drive propulsion systems.


The Cyber & Intelligence segment provides solutions to modernize, maintain, and test cyber-harden aircraft, radars, missile systems, and mission applications that detect and deter threats to national security; systems engineering, integration, and sustainment services for critical weapons systems, C5ISR, and cyber security; and solutions and services to intelligence and federal/civilian agencies.It also offers data intelligence solutions to defend against national-scale threats, protect their networks, and data against attacks; security and intelligence solutions to the United Kingdom government and allied international governments; anti-fraud and regulatory compliance solutions; and enterprise-level data and digital services.The Platforms & Services (US) segment manufactures combat vehicles, weapons, and munitions, as well as provides ship repair services and the management of government-owned munitions facilities.


The Air segment develops, manufactures, upgrades, and supports combat and jet trainer aircraft.The Maritime segment designs, manufactures, and supports surface ships, submarines, torpedoes, radars, and command and combat systems; and supplies naval gun systems.It also supplies naval weapon systems, missile launchers, and precision munitions.


The company was founded in 1970 and is based in Farnborough, the United Kingdom.

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1.b. Last Insights on BA

BAE Systems' recent performance faces challenges due to rising costs and supply chain pressures. Despite a 26.6% surge in three months, fueled by new defense contracts and facility inauguration, concerns arise from increasing expenses. The company's upgraded full-year guidance, driven by $800 million and $1.2 billion contracts with the U.S. Air Force and Space Force, may be impacted by escalating costs. BAE Systems' investment in modernizing its Nashua Microelectronics Center, supported by the CHIPS Act, aims to increase production capacity and reduce costs for defense programs.

1.c. Company Highlights

2. BAE Systems Delivers Strong Half-Year Results, Upgraded Guidance

BAE Systems reported an 11% increase in revenue to £14.6 billion, driven by growth in Platforms & Services (P&S) and Maritime sectors, with underlying EBIT increasing 13% to nearly £1.6 billion and a 20 basis point improvement in margin to 10.6%. The company's order intake was £13 billion, with a contract backlog of £75 billion and a total backlog of nearly £260 billion. Earnings per share (EPS) grew 9% to 0.3573, beating estimates of 0.3491. According to the company's management, "We have delivered a strong performance in the first half, with significant growth in sales and EBIT, and we are well-positioned to benefit from increasing defense spending in key regions." (Source: BAE Systems' H1 2023 Earnings Call Transcript).

Publication Date: Jul -30

📋 Highlights
  • Strong Financial Performance: Revenue rose 11% to £14.6 billion, with underlying EBIT increasing 13% to nearly £1.6 billion and a 20 basis point margin improvement to 10.6%.
  • Regional Growth Opportunities: Increasing defense spending in key regions, including a 13% rise in the US defense budget, positions BAE Systems for continued growth in national security and missile defense.
  • Technology Investments: The company is investing in drones, counter-drone technology, and R&D, with partnerships in Japan and Italy for next-generation combat aircraft.
  • Upgraded Full-Year Guidance: Sales growth is expected at 8-10%, with EBIT growth of 9-11% and free cash flow exceeding £1.1 billion, supported by a strong backlog of £260 billion.
  • Margin Expansion in MBDA: MBDA's margin is expected to grow 100 basis points year-on-year, supported by a €2.5 billion investment to expand capacity and meet growing demand.

Financial Highlights

The company's financial performance was strong, with an 11% increase in sales, a 13% increase in underlying EBIT, and a 9% increase in EPS. The company's free cash flow was a small outflow, in line with expectations, and it invested nearly £400 million in CapEx in the first half of the year. BAE Systems' ROIC was 7.83%, and its ROE was 17.1%, indicating a strong return on investment. The company's valuation metrics are reasonable, with a P/E Ratio of 27.47, a P/B Ratio of 4.63, and an EV/EBITDA of 15.64.

Segment Performance

The Platforms & Services division had strong growth, which is expected to continue, albeit at a slower pace, driven by ramp-ups in CV90s, BvS10s, and other orders. The FalconWorks business is growing rapidly, with a focus on autonomous and uncrewed platforms. The U.S. business is well-positioned to capture new opportunities, with a strong portfolio and a 13% increase in defense budget.

Guidance and Outlook

BAE Systems is upgrading its full-year guidance, expecting sales growth of 8-10% and underlying EBIT growth of 9-11%. The company also expects free cash flow to be higher than £1.1 billion and EPS growth to be between 8% and 10%. The company's EPS guidance remains unchanged, with an 8-10% growth rate, affected by a higher tax rate and fewer share buybacks due to the increased share price.

Valuation and Shareholder Return

The company's valuation metrics suggest that the stock may be fairly valued, with a Dividend Yield of 1.85% and a Free Cash Flow Yield of 5.18%. The company's share buyback program, started in 2021, has been effective in returning surplus cash to shareholders. With a Net Debt / EBITDA of 1.79, the company has a manageable debt burden and a strong balance sheet.

3. NewsRoom

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BAE Systems Rolls Out Velhawk to Expand Cybersecurity Capabilities

Dec -04

Source:

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Huntington Ingalls Secures Contract to Support Aircraft Carrier

Dec -04

Source: zacks.com

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BAE Systems launches BAE Systems OneArc, a defense technology innovator to transform the modern battlespace

Dec -04

Source:

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BAE Systems (LSE:BA.) Valuation Check After Recent Share Price Pullback

Dec -04

Source:

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Ducommun Incorporated named BAE Systems Supplier of the Year for Vertical Launch Systems at Seventh Annual ‘Partner2Win’ Supplier Symposium

Dec -04

Source:

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C3 AI Announces Fiscal Second Quarter 2026 Results

Dec -03

Source:

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Tameka Shepherd Joins DCS as Vice President of Security

Dec -03

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BAE Systems launches Velhawk™ Cybersecurity Solutions to strengthen customer resilience and accelerate cyber defense

Dec -03

Source:

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (6.70%)

6. Segments

Defense, Space & Security

Expected Growth: 7.2%

The defense segment is expected to grow faster than the global average due to increasing demand for advanced military technologies and the need for governments to modernize their defense systems. The segment's strong backlog and ability to secure large contracts contribute to its higher growth rate.

Commercial Airplanes (incl. Boeing Capital)

Expected Growth: 6.5%

The commercial airplanes segment is expected to grow at a rate slightly below the global average due to the cyclical nature of the commercial aviation market and the impact of external factors such as fuel prices and airline profitability. However, the segment's diversified product lineup and strong order backlog help to mitigate these risks.

Global Services

Expected Growth: 7.5%

The Global Services segment is expected to grow faster than the global average due to the increasing demand for aftermarket services and the need for customers to optimize the performance of their aircraft and defense systems. The segment's diversified service offerings and strong customer relationships contribute to its higher growth rate.

Unallocated Items, Eliminations and Other

Expected Growth: 0.0%

The growth rate for this segment is expected to be zero as it is not a operating segment and its financial performance is not directly related to the company's core business activities.

7. Detailed Products

Electronic Warfare

BAE Systems' Electronic Warfare (EW) solutions provide advanced capabilities to detect, identify, and counter threats across the electromagnetic spectrum.

Cyber Security

BAE Systems' Cyber Security solutions provide advanced threat detection, incident response, and penetration testing to protect against cyber threats.

Autonomous Systems

BAE Systems' Autonomous Systems solutions provide advanced autonomous capabilities for land, sea, and air platforms.

Combat Vehicles

BAE Systems' Combat Vehicles solutions provide advanced armored vehicles for military forces around the world.

Naval Ships

BAE Systems' Naval Ships solutions provide advanced warships and submarines for naval forces around the world.

Intelligence, Surveillance, and Reconnaissance (ISR)

BAE Systems' ISR solutions provide advanced sensors and analytics for military and civilian customers.

Training and Simulation

BAE Systems' Training and Simulation solutions provide advanced training systems for military and civilian customers.

Head-Mounted Displays

BAE Systems' Head-Mounted Displays solutions provide advanced helmet-mounted displays for military pilots.

Communication Systems

BAE Systems' Communication Systems solutions provide advanced communication networks for military and civilian customers.

8. BAE Systems plc's Porter Forces

Forces Ranking

Threat Of Substitutes

BAE Systems plc has a moderate threat of substitutes due to the presence of alternative defense contractors and the ability of governments to develop their own defense capabilities in-house.

Bargaining Power Of Customers

The bargaining power of customers is low due to the specialized nature of defense products and the limited number of major customers, primarily governments.

Bargaining Power Of Suppliers

The bargaining power of suppliers is moderate due to the presence of a few large suppliers of critical components and the potential for supply chain disruptions.

Threat Of New Entrants

The threat of new entrants is low due to the high barriers to entry, including significant capital requirements, regulatory hurdles, and the need for specialized expertise.

Intensity Of Rivalry

The intensity of rivalry is high due to the competitive nature of the defense industry, with several major players competing for a limited number of contracts.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 33.24%
Debt Cost 5.76%
Equity Weight 66.76%
Equity Cost 5.76%
WACC 5.76%
Leverage 49.80%

11. Quality Control: BAE Systems plc passed 7 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
BAE Systems

A-Score: 5.7/10

Value: 2.4

Growth: 6.9

Quality: 4.8

Yield: 4.4

Momentum: 9.5

Volatility: 6.3

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Safran

A-Score: 5.0/10

Value: 1.1

Growth: 4.1

Quality: 7.2

Yield: 0.6

Momentum: 8.5

Volatility: 8.3

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Airbus

A-Score: 5.0/10

Value: 1.7

Growth: 5.6

Quality: 5.2

Yield: 1.2

Momentum: 8.5

Volatility: 7.7

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Thales

A-Score: 4.9/10

Value: 2.0

Growth: 5.0

Quality: 4.2

Yield: 3.1

Momentum: 10.0

Volatility: 5.3

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Rheinmetall

A-Score: 4.9/10

Value: 0.2

Growth: 8.6

Quality: 6.3

Yield: 2.5

Momentum: 10.0

Volatility: 2.0

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Rolls-Royce

A-Score: 4.8/10

Value: 1.9

Growth: 6.4

Quality: 6.6

Yield: 0.6

Momentum: 9.5

Volatility: 3.7

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

16.73$

Current Price

16.73$

Potential

-0.00%

Expected Cash-Flows