Solid set of numbers, debate on the cash outlook BAE released a solid set of 2023 numbers, overall meeting PandL expectations (underlying EBIT in line with consensus, with a beat in Maritime and a miss in PandS). Other points of note include strong order momentum (book to bill slowing after an exceptional H1, but still at a strong 1.27 in H2) and a nice underlying FCF beat (c.GBP0.3bn, excluding WC timing effect that will reverse in 2024). While overall execution as per the 2024 guidance seems good (1% EBIT beat to consensus on 2024 organic guidance), there are a few modest points of debate, with slightly less contribution expected from Ball Aerospace in year 1, underpinning a small miss of the consensus EPS vs guidance, and a 3-year FCF outlook marked by significant consumption of customer advances. The relative weakness of FCF in our view was the main driver of the share pullback on the day. Earnings and valuation fine-tuned While the divisional outlook provided by the company looks very close to our expectations, we have added a few months of consolidation of Ball Aerospace (10 months in 2024 instead of 6 initially expected) and deconsolidated a 34% stake in Air Astana (IPO underway). We have also modelled another tranche of share buybacks in 2024 and reduced our net interest expense forecast as per the company''s guidance. This explains our EPS increase while our EBIT forecast are almost unchanged. The lifting of our fair value from 1,128p to 1,180p mostly reflects a reduction in the time discount of our SOTP (still 2025-based) and modest EBIT revisions. Nothing to complain about on BAE, but we still prefer more targeted defence exposure While the geopolitical environment remains complex, and in spite of the US election campaign weighing on defence spending debates much earlier than we thought, we continue to prefer to play defence through targeted exposure from smaller players, the benefit of large, diversified players (resilience) also limiting...