In times of international conflict and global instability, consumer defensives and commodity related equities are often favoured amongst investors. However, the Aerospace & Defence sector, which traditionally falls under the radar, can perhaps offer more promising prospects in such troubled times.
Indeed, over the past month, BAE Systems had the highest relative strength of any company listed on the FTSE 100. A 41.9% 1-month relative strength return highlights the outperformance versus its peer group and would have provided a glimmer of hope when the vast majority of equities on the London market are in correction territory.
Whilst the recent developments in Ukraine have proven to be a major driving force in BAE’s upward share price momentum, the company’s most recent preliminary results demonstrated the progress it has made in recent years. Revenues, operating profits and dividend payments have steadily grown, and the market is now starting to take note of this.
However, as the share price reaches all-time highs, the valuation may start to appear slightly less appealing to investors. 2022 sales growth is expected in +2% to +4% range. Perhaps BAE’s shares have reached a peak on the back of Russia’s war in Ukraine?
Profile
What are the company's principal business activities, how does it generate its revenues?
BAE Systems is the largest defence, aerospace and security company in the UK. The company is the 7th largest defence manufacturer in the world by revenues and makes up 13.5% of the Ministry of Defence spending on its suppliers (as of 2019/2020). Operating in over 40 countries and employing a skilled workforce of some 90,500 people, BAE provides some of the most advanced weapons technology systems in the world.
The company generates its revenues through 5 key segments: Electronic Systems, Platforms & Services, Air, Maritime and Cyber & Intelligence. The revenue split between these can be seen from the group’s 2021 full year results below.
The Electronic Systems division caters for both the military and commercial electronics markets, providing products such as flight and engine controls, electronic warfare and night vision systems, surveillance and reconnaissance sensors and mobile networked-communications equipment.
Platforms & Services includes the design and manufacture of combat vehicles, ammunition, precision munitions, artillery systems and missile launchers. The division also generates significant…
