BAE Systems (BA.) on Thursday reported record orders alongside revenue growth in 2022, but a slight decline in profit, as it lifted its payout by 7.6%.
The London-based defence contractor said annual revenue rose 8.9% to £21.26 billion from £19.52 billion a year earlier. Sales were up 4.4% to £23.26 billion from £21.31 billion, beating previous company guidance of £23.05 billion.
Pretax profit, however, fell 5.7% to £1.99 billion from £2.11 billion, as basic earnings per share declined by 7.4% to 51.1 pence from 55.2p a year earlier.
Operating costs rose 8.6% to £19.27 billion from £17.74 billion, and net finance costs increased by 5.7% to £295 million from £279 million a year earlier.
Underlying earnings before interest and tax amounted to £2.48 billion, up 5.5% from £2.21 billion and slightly above company guidance of £2.45 billion.
"We've delivered sales, underlying EPS and free cash flow all above guidance, which is a testament to our people and their continued, long-term focus on operational excellence," said Brad Greve, finance director.
BAE noted a "record" order intake of £37.1 billion, compared to £21.46 billion in 2021, bringing its backlog to £58.9 billion, up from £44.0 billion a year ago.
For 2022, BAE declared a total dividend of 27.0p per share, up 7.6% from 25.1p the year before. This beat consensus of 26.7p per share for the year.
In 2023, BAE expects sales to increase by 3% to 5%, with underlying earnings before interest and tax to grow 4% to 6%, and underlying earnings per share to rise 5% to 7%.
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Market Reaction
Shares fell on Thursday morning by 3% to 874p. Morningstar analysts assign the shares a fair value of 700p. BAE was one of the best performers on the FTSE 100 last year and the shares are up 45% on this time last year.
Russ Mould investment director at AJ Bell said: “Despite predicting higher military spend in 2023 which should improve its earnings, the negative share price reaction is most likely to down to investors taking profit after a strong run for the shares since Russia invaded Ukraine a year ago and how that led investors to seek exposure to the defence sector.”
Aarin Chiekrie, equity analyst at Hargreaves Lansdown said:
“Its customers are governments whose budgets aren’t constrained by a recession in the same way that a typical consumer’s is. And with many governments raising their defence budgets amid escalating global tensions, BAE is benefitting by capturing this extra spending. That’s reflected in a record order backlog that’s now sitting at a hefty £59bn. As these are typically long-cycle, with revenues spread over several years, it gives BAE multi-year revenue visibility.
“But ultimately, the group’s profitability is based on its estimates of revenues and future costs. And the long-term nature of many contracts means that the related risks and costs can change over time too. It’s turbulent energy costs and potential supply chain issue that are the main trip hazards currently. While we think BAE is in good shape to deliver on its long-term growth strategy, uncertainty around future costs will remain a risk.”
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