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With its half-year results out today, here is why I back BAE Systems

A company I have been a fan of for a while now, BAE Systems (LSE: BA), released its first-half results today, and after looking at the numbers, I like the stock even more.

The results

First, let’s look at a few of the figures. The company reported strong performance on both the top and bottom lines. Against the same half last year, revenue was up 4% to £8.7bn, operating profit climbed 7% to £896m and underlying earnings per share rose 11% to 21.9p per share. Even better for investors, the interim dividend was increased 4.4% to 9.4p per share, while sales increased by 4%.

On a more negative note, the numbers did show debt has ballooned from £904m at the end of 2018 to about £1.9bn, though it should be said that for the same half last year, net debt stood also stood at £1.9bn. The share price meanwhile is up only 2% or so as I write this, as today’s results are all in line with the company’s previous guidance.

BAE said it awaits the final terms of any Brexit agreement to gauge the nature of a new regulatory environment, although it also noted that “there is relatively limited UK-EU trading and movement of EU nationals into and out of BAE Systems’ UK businesses, and near-term impacts across the business are likely to be limited.

The investment case

As I said, I have been bullish on BAE for a while now, and today’s numbers, while perhaps not enough to make the share price rocket, I think they do help solidify the investment case.

The dividend increase is part of a broader aspect of BAE that I like for an income stock – its current yield is a solid 4% with dividends having seen a nice, though admittedly not brilliant, 2% annual growth over the past five years.

The share price has been weighed down by some concerns over its exposure to Saudi Arabia as tensions between the UK and the Kingdom escalated last year, and while Brexit itself doesn’t perhaps present the company with too much of a concern directly, the political uncertainty in the UK over the past few years has also had an impact.

Domestically, concerns that a Jeremy Corbyn-led labour government may get into Downing Street have dampened the stock price, as Mr Corbyn is unlikely to boost the defence industry, and specifically is an outspoken opponent of the UK’s nuclear deterrent, for which BAE produces the Dreadnought submarines.

Both of these concerns have in my opinion, been overstated and at the moment seem to be somewhat fading as an issue. The company has far greater exposure to the more stable US and European markets, has a large order backlog that will keep money flowing in, and has made a number of significant deals recently. This month saw it announce a new combat vehicle joint venture with German partner Rheinmetall, and it said it was hopeful of a multimillion-pound deal to produce advanced warships for New Zealand.

Though the share price has been climbing in the last month or so, I still think it is at decent enough levels to make it worth buying for the long term. I for one, think BAE would make a fine addition to any portfolio.

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Karl owns share of BAE. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.