Europe's biggest defence firm, BAE Systems, beat estimates with a 17 percent rise in first-half underlying profits, sending its shares 3 percent higher as its armoured-vehicle business drove growth. Earnings before interest, taxes and amortisation (EBITA) rose to 700 million pounds ($1.42 billion), BAE said in a statement on Thursday.
"Building on the strong first half performance, the previously anticipated good growth outlook for 2007 as a whole is expected to benefit further from the US-led Land & Armaments and UK Programmes & Support sectors where growth is ahead of expectations," it said. Operating profit of 643 million pounds was up 19 percent, beating expectations of 614 million in a Reuters poll. "Interims have massively exceeded market expectations," Numis Securities analyst Clive Forestier-Walker said in a note which rated BAE a "Buy" with a target price of 580p.
"On our new tentative forecast the shares are trading at 12.5 times 2008 which is at a 9 percent discount to the sector with well above average growth prospects," he said, noting this priced BAE at a 20 percent discount to US defence companies.
Sales rose 8 percent to 6.891 billion pounds for the six months to June 30, slightly ahead of analysts' forecasts. BAE builds warships, nuclear submarines, fighter jets and missiles, but it has added a large armoured-vehicles business to that list with its acquisition in recent years of US firm United Defence and UK maker Alvis.
Key contracts in the first half for BAE included deals worth more than $400 million for upgrades and refurbishment of Bradley Fighting Vehicles for the US Army. It completed the $4.5 billion take-over of US armoured vehicle maker Armor Holdings last month, paving the way for further growth in the second half.
Chief Executive Mike Turner said a probe by the US Department of Justice into the British defence company's compliance with anti-bribery laws, including its past dealings with Saudi Arabia, was not holding back business. "It has not affected our business in the United States in any way," Turner told reporters on a conference call.
BAE said its talks to finalise the sale of Eurofighter Typhoon fighter jets to Saudi Arabia were continuing. Arms sales to Saudi Arabia represent the biggest export deals in British history and the latest, involving the sale of 72 Eurofighter Typhoon jets, is worth an estimated 10 billion pounds including weapons and support.
"Negotiations continue towards a contract for the supply of Typhoon aircraft and associated training and support under the Understanding Document signed in December 2005 between the UK government and the Kingdom of Saudi Arabia," it said.
There has been media speculation that the deal could be done before the month of Ramadan starts in mid-September or when King Abdullah bin Abdul Aziz al Saud of Saudi Arabia pays a state visit to Britain at the end of October.
Turner declined to comment on the timing of any deal. Asked about reaching retirement age next year, Turner said "I don't plan to go anywhere" but conceded the board would have to decide whether to let him stay on longer. BAE announced on Wednesday that executive director and board member Chris Geoghegan would leave at the end of the year. BAE proposed a dividend of 5.0 pence versus 4.4p in the same period a year earlier.