British defence contractor BAE Systems says it expects delays to military programmes in the United States but that it had not suffered the sort of hold-ups experienced by some competitors.
Shares in the company rose more than 3 percent as analysts said a meeting with company management on Tuesday had reassured them BAE was relatively well placed to cope with spending cuts in Britain and the US. “On US ground combat vehicles there is a relook at requirements going on — that will be delayed by six to nine months,” Linda Hudson, BAE’s US president, told reporters at a briefing in London on Wednesday.
“We will see the start of big US projects stretch out and slow,” she said. US Army officials said last month they were close to releasing a strategy for a new multibillion-dollar Ground Combat Vehicle competition after cancelling the previous request for proposals in late August. BAE Chief Executive Ian King said, however, that the company had not been hit as hard as some rivals.
“Third-quarter sales grew in the U.S. and we’re still doing very nicely there. We’re not seeing delays as serious as some of our competitors,” King said.
British aerospace electronics group Cobham warned this month US defence contract delays would dent full-year sales, while defence technology company QinetiQ has also highlighted uncertainty created by possible Pentagon cutbacks. In terms of potential acquisitions BAE is seeking in the US, King played down the prospect of any major deals, saying there was no great appetite from the US Department of Defence for “top-tier consolidation”.
“We’re looking for opportunities to be a consolidator in the US intelligence and security sector. It’s a very fragmented market with a lot of niche players,” added Hudson. Shares in BAE closed up 3.1 percent at 359.4 pence, against a 1 percent fall in London’s FTSE 100 blue-chip index .FTSE.
Investec reiterated its ‘buy’ recommendation on the stock after what was described as a bullish investor day. “For the first time in a long time, management is talking in terms of growing the top line across its broad portfolio, despite slowing defence budgets in the UK and US,” the broker said in a note to clients. Analysts at Credit Suisse, who have an outperform rating on the stock, issued a note to clients saying there had been a positive tone at Tuesday’s meeting. “In our view multiples imply the market is pricing in a 25 percent cut to earnings, which against our stress tests is an unfeasible assumption,” they wrote.
“With a lot more detail around how BAE can translate their position into a resilient earnings profile over time, we believe the scope for a rerating is increasingly significant.”