BAE Systems Shares At Highest Level Since May 2011 On US Budget Relief
February 14 2012 - 1:23PM
Dow Jones News
Defense giant BAE Systems PLC's (BA.LN) shares rose Tuesday to
their highest level since May 2011 on relief that planned cuts in
U.S. defense spending as part of President Barack Obama's new
budget announced Monday weren't as deep as investors had
feared.
The U.K. defense company's stock closed up 2.9% at 329 pence,
outperforming London's benchmark FTSE 100 index which was down
0.1%.
For the fiscal year that begins Oct. 1, President Obama is
seeking $525.4 billion for the basic operations of the Defense
Department, plus $88.4 billion to support troops in Afghanistan.
The proposal is $6 billion lower than the 2012 base budget of $531
billion, approved by Congress, which was a cut of $22 billion from
the administration's proposal for the current year.
"The budget has offered a little bit of relief [as] the market
would have been expecting worse. The cuts could have been more
severe," said Roger Johnston analyst at London brokerage Edison
Investment Research.
But an official at another U.K. defense company warned
uncertainty over defense spending by the U.K. and U.S. governments
continues to hang over U.K. contractors even if there were no
unpleasant surprises in the U.S. budget announcement.
BAE Systems declined to comment.
The group, which derived 29% of half-year sales from its U.S.
platforms and services division, reports full-year results
Thursday. BAE Systems is expected to report earnings before
interest, taxes, and amortization of GBP2 billion compared with
GBP2.13 billion in 2010.
BAE's order book is expected to show the impact of defense
spending cuts in the U.K. and the U.S. which have thrown the
defense group's growth strategy off course.
The U.S. government envisions shrinking military spending by
$487 billion over 10 years, representing a cut of about 8% a year,
according to Pentagon figures.
In the U.K., the government plans to offset a GBP38-billion hole
in its defense budget with a 7.5% cut in Ministry of Defence yearly
spending to save GBP10 billion over four years.
Shares in other U.K. defense contractors with business in the
U.S. were also higher Tuesday. Shares in Meggitt PLC closed up 1.9%
at 372p Tuesday.
-By Mark Shapland, Dow Jones Newswires; +44 207 8429358;
mark.shapland@dowjones.com