BAE Systems: Poised for Expansion?

Despite unflattering headlines, BAE Systems appears poised for profitable expansion into new markets.

Mark E. Lanyon, CFA 15 June, 2007 | 12:14PM
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This morning's headlines emanating out of Washington D.C. should provide comfort to BAE systems shareholders concerned about recent allegations of bribery and corruption.

BAE Systems might have thought it was in the free and clear following its successful passage through a UK government probe into bribery accusations. Recent rumors that U.S. based watchdogs might now be investigating allegations regarding sizeable payments to Saudi officials have added fuel to this moldering story, however.

Despite these various headlines, the White House is plowing ahead with a plan to bypass the need for export license approval regarding arms sh

ipments to the United Kingdom. This is relatively insignificant to the long term fundamental drivers of the BAE Systems business model and has not even been sent to the U.S. Congress for approval. What is does underscore, in our opinion, is the important role national champion defense firms such as BAE, Lockheed Martin, and others currently play in the mind of Western government officials contemplating the current geopolitical landscape. With its key government customers happy and engaged, BAE Systems should enjoy robust demand for products over the medium term. Despite unflattering headlines, the path looks laid for this firm’s continued expansion not only in the all-important U.S. defense market but also in emerging markets such as Australia, Saudi Arabia, and Sweden.

Top 10 UK Fund Owners of BAE Systems, by Per Cent of Fund Assets
Fund Portfolio
Date
Number
of Shares
Per Cent
of Fund Assets
Rathbone Income & Growth 31/03/2007 500,000 4.46
F&C UK Opp 31/05/2007 1,250,000 4.04
HSBC UK Freestyle 30/04/2007 1,007,165 3.91
ResolutionAsset UK Focus 30/04/2007 127,432 3.87
Allianz RCM UK High Alpha 30/04/2007 149,600 3.86
Skandia MultiMgr Tr UK Eq 28/02/2007 2,582,370 3.68
Lazard UK Omega 28/02/2007 2,382,980 3.67
Lord Abbett UK Gr & Inc 31/01/2007 128,365 3.38
ML UK Dynamic 28/02/2007 9,177,290 3.38
Gartmore UK Focus 30/04/2007 1,637,000 3.10

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Mark E. Lanyon, CFA  Mark Lanyon, CFA, is a stock analyst with Morningstar.

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