BAE Systems plc Lags Rolls-Royce Holding PLC, Royal Mail PLC And GKN plc After Trading Update

BAE Systems plc (LON:BA) has underperformed Rolls-Royce Holding PLC (LON:RR), Royal Mail PLC (LON:RMG) and GKN plc (LON:GKN) in 2016


BAE Systems plc (LON:BA) has released a trading update. Trading has been consistent with the company’s expectations and its outlook for 2016 remains unchanged. Group underlying EPS is expected to be between 5% and 10% higher than last year’s adjusted underlying EPS of 36.6p.

BAE has made good progress in the UK. It has worked with the MoD on implementing the Strategic Defence and Security Review. In July, BAE signed a Typhoon support partnership agreement which is expected to be worth £2.1 billion over a ten year period.

Export activity continues to be supported by the UK government. Although there can be no certainty, discussions with current and prospective operators of the Typhoon aircraft continue to support BAE’s expectations for additional Typhoon contract awards.

In the US, the outlook for the defence market is still positive. The production ramp up on a number of BAE’s long term programmes is progressing to plan. A Continuing Resolution went into effect on 1 October, under which the Group does not expect any material disruption in the near term. In August BAE delivered ship six under its new commercial shipbuilding contracts. The remaining two ships are due for completion in 2017.

BAE continues to engage in discussions with the UK government and the Saudi Arabian government to define the scope and terms of the next five year Saudi British Defence Co-operation Programme.

In 2016, BAE’s shares have risen by 8%. This is behind the performance of fellow industrial companies Rolls-Royce Holding PLC (LON:RR), Royal Mail PLC (LON:RMG) and GKN plc (LON:GKN). Rolls-Royce has risen by 32%, Royal Mail is 10% higher and GKN is 9% up on its 2015 closing price.

In my view, BAE is a sound business which is making good progress on its targets. Therefore, I feel it has investment appeal at this moment in time.

The author owns shares in BAE at the time of writing.

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