BAE Systems (BA.) is the top riser on the FTSE 100 as investment bank Berenberg moves from ‘hold’ to ‘buy’ on the stock, upping its price target from 520p to 580p. The aerospace and defence firm is up 2% to 539p.
The catalyst for the change in Berenberg’s view was July’s interim results (28 Jul). It now expects a 10-20% uplift in the £36.6 billion order book over the next six months and points to improving cash flow. Analysts Charlotte Keyworth, Andrew Gollan and Ross Law see pension fears as overdone.
‘In our view, although BAE’s pension position and cash contributions are negative drivers for sentiment, we remind investors that changes will not affect cash flows until 2018, and we do not expect a material impact on current estimates.’
They further point out BAE is trading at a 30% discount to the average 2017 price to earnings ratio of its US peers and remains an attractive income play with a secure 4% plus dividend yield.
Adding revenue stability is provided by the fact ‘45% of BAE’s sales are from services and support, and 35% are from major programmes’.
