BAE Systems Shares Rocket Despite Bleak US and UK Outlook
BAE Systems delivered a bleak outlook for the US and UK market after it posted a slump in profit and sales for 2012.
However, the group's share price rocketed by over 5 percent in early trading to 349.00p, as the group revealed that it is increasing its dividend by 4 percent to 19.5p and had started a three-year share buyback programme of up to £1bn.
Europe's largest defence contractor missed analyst estimates by posting a 6 percent drop in profits for last year, after being hit by unresolved discussions with Saudi Arabia over the pricing of a key contract, according to its latest earnings statement.
The group's earnings before interest, tax and amortisation (EBITA) fell to £1.895bn (€2.17bn / $2.90bn) as consensus forecasts expected BAE Systems to post 2012 EBITA of between £1.85bn and £2.1bn, with the average at £1.92bn.
Sales also fell by 7 percent to £17.83bn in 2012.
The group also warned that the outlook for the US and UK markets are constrained despite the raft of deals it sealed last year.
"Growth opportunities in some segments of the US and UK markets are identified, but the overall outlook in both countries is expected to continue to be constrained. Subject to near-term uncertainties relating to U.S. defence budgets, modest growth in underlying earnings per share is anticipated for 2013," the company said in a statement.
In October last year, BAE's proposed merger with European planemaker EADS collapsed, in what would have been the world's largest defence and aviation merger.
BAE met strong opposition to the tie-up from analysts, shareholders andpoliticians, as they believed that the potential $45bn deal could lead to state interference, poor terms and a lack of strategic rationale that could, in turn, hurt the British defence company's long term company health, as the merger with EADS could have a negative impact on BAE's unique position in the US.
Although BAE is a UK-listed company, it derives nearly half of its global revenue from its largest customer; the US military. The deals have also placed it among the biggest foreign companies in the US defence sector.
However, since the collapse of the proposed merger, BAE signed a number of military deals, despite being under pressure from shrinking military budgets in the US and Britain.
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