The impact of the war in Ukraine on global geopolitics has led to a record level of orders at BAE Systems, with governments beefing up spending on defence from nuclear submarines to tanks and fighter jets.
Shares in the London-listed multinational topped the FTSE 100 after it revealed a £66.2 billion order book alongside a sharp rise in profits and a fresh £1.5 billion payout for investors.
BAE’s chief executive, Charles Woodburn, told the Standard that the “very tragic circumstances” of the Ukraine war had drawn attention to the importance of defence companies.
That has helped the investment case for BAE, after the prevalence of environmental, social and governance criteria (ESG) had previously kept some potential buyers for its shares on the sidelines.
“Before the war in Ukraine there were elements of the London market in particular that were shying away from defence under ESG grounds, particularly over things like our involvement in the UK nuclear deterrent,” he said.
“A number of our traditional shareholders in London had put us on the wrong side of that debate and were refusing to meet us,” Woodburn continued.
“But ESG has to sit on a strong foundation of defence and security. Events that are playing out in Europe are a very salient reminder of that. The pendulum is now swinging to a more balanced position of ESG considerations coexisting with the need for defence and security.”
Sales in the six months to the end of June hit £12 billion, up 11%, with underlying earnings reaching £1.3 billion, up 10%. BAE lifted its dividend by 11% to 11.5p and announced plans to return a further £1.5 billion to investors via a share buyback.
BAE’s stock added 42p to 975.4p, heading back toward the record of 1037p reached in April.
The Farnborough-based company, which employs over 93,000 people, is helping Australia acquire its first nuclear-powered submarines as part of the “Aukus” defence pact between the Antipodean nations, the UK and the US.
With war raging in Europe’s east, the Czech Republic awarded BAE’s Swedish subsidiary Hägglunds a £1.8 billion contract to to produce 246 CV90 MkIV infantry fighting vehicles to be used “maintaining national sovereignty”.
It has also signed a £700 million deal with the Ministry of Defence to improve the technology used by the UK’s fighter jets. It is also working on the battery that will power Heart Aerospace of Sweden’s ES-30 electric airplane, which will have regional range capabilities.
Andy Chambers at the investment consultant Edison called the results “very strong”, and said the BAE was “benefiting from a general rearmament among NATO countries as the war in Ukraine grinds on.”
He added: “The company clearly expects a permanently scaled-up demand for armaments in an increasingly uncertain world.”
