BAE released a trading update for the third quarter, which was fairly reassuring. Demand remained high across all major markets, fuelling the backlog. Operationally, programme ramp-ups and good execution across divisions maintained earnings, with potential for raising the EPS for 2020.
Companies: BAE Systems plc
BAE released a sound H1 set of results, beating consensus at revenue, profitability and cash generation levels. The company’s business model proved to be very resilient and displayed encouraging prospects for the remainder of the year. We maintain our Buy recommendation on the stock.
BAE has issued a pre-close trading update ahead of the H1 publication in July, highlighting a positive and reassuring operational performance across all sectors despite the pandemic. Overall, the impact is mainly on the profitability side, while both top-line and cash generation have turned more resilient. Productivity accelerated through June, near normal, boding well for the expected rebound in the second half of the year.
BAE reported sound results today, roughly in line or above estimates, as well as for guidance. The company recorded operational improvements in a number of programmes, which, combined with ongoing contracts that are maturing, lead us to expect a further improvement at the cash level.
BAE Systems has entered into an agreement to buy Collins Aerospace’s Military Global Positioning System business (GPS) and Raytheon’s Airborne Tactical Radios business. We expect the acquisition (fully financed by additional debt) to be both EPS and cash flow accretive while maintaining a healthy balance sheet for further potential acquisitions.
BAE has released its Q3 trading update, bringing qualitative comments to the market. Overall, no major news nor surprises were released. The company is delivering according to expectations and the guidance for 2019 is maintained.
BAE reported results roughly in line with expectations, with a slight profitability expansion. However, due to the ramp-up of a low margin programme, this performance might not be repeatable in H2. The company has maintained its FY19 guidance despite the current German ban on sales to Saudi Arabia.
Sales were £18.4bn, flat yoy and in line with the expectations
Revenues were down 2% yoy
Underlying EBITA was down 2% while operating profit (IFRS measure) grew by 13% to £1.6bn, in line with expectations
Operating business cash flow was down by 43% while the IFRS measure of net cash flow from operating activities was £1.2bn, down by 37%
EPS came at 42.9p, in line with both expectation and guidance
Order intake grew by +40% to £28.2bn
Order backlog reached £48.4bn vs. £38.7bn in 2017 (IFRS restated)
For FY19 BAE sees its EPS growing by a mid-single digit range compare to FY18 and expected to reach more than £3bn over the next three years
BAE Systems issued today a trading update. This comes with only qualitative comments on the advancement of its commercial programmes.
As a summary, BAE’s FY18 outlook remained unchanged and the company sees its EPS in line with 2017.
The company sees strong commitments in defence budgets in both the UK and the US which will support its activities in these countries. Also, BAE reminded that Brexit would only have a limited impact on its activities as there is a relatively limited UK-EU trading movement of EU nationals into and out of BAE Systems’ UK businesses.
In terms of specific programmes, the F-35 one is well on track and the UK-managed Applied Intelligence business will achieve its breakeven by year-end.
As for the international markets, the company remains active in the big Typhoon and Hawk contract won with Qatar which enables an extension to the Hawk programme and gives great visibility for the Typhoon over the next decade. For the latter, BAE indicated that there is still some opportunities for this programme in both partners’ countries and through exports. Negotiations are continuing with Australia and Canada in the Maritime segments.
The next interim dividend of 9p will be paid on 30 November.
BAE Systems reported mixed FY result figures with slightly increasing sales thanks to all divisions except for UK Platform & Services. The EBITA margin also slightly increased to 10.4%. However, the operating profit has been strongly impacted by the impairment of some intangible assets, leading profit for the year to decrease by almost 6%. The dividend is almost flat yoy as is the order backlog.
BAE Systems reported a good looking set of H1 results, showing an improvement in revenues and EBITA margin (and the IFRS accounted operating profit margin), but also a modest increase in the order backlog versus FY16. Growth came from all divisions not only in terms of sales, but also EBITA. With increased operating cash flow in a usually-seasonally-weak half-year and higher EPS (+13.8% yoy), the group was able to increase the distributed interim dividend and has confirmed the FY guidance in an improving market environment.
BAE Systems reported quite strong FY results with growing sales, operating profit, cash flow from operations and dividend, but a stable EPS. The group remains confident for 2017 with growing margin expectations, as was the case in 2016. BAE Systems has shown resilience in 2016 in a difficult environment while sales have been supported by exchange translations.
Steve “Woz” Wozniak, infamous co-founder of Apple, was the latest culprit to send shivers across the tech world by claiming Cybersecurity is the greatest threat the world has faced since the atom bomb. Mr Wozniak was alluding to the heightened sense of fear that recent high profile breaches have caused Cybersecurity to be put at the forefront of political, corporate and now it would appear, investor agendas. As the topic gains increasing awareness, it gives rise to a number of companies claiming to be a “thought leader” in the Cybersecurity space, holding the best IP and the best routes to market. With many companies singing from the same loss making hymn sheet it is making it ever difficult to spot the true “Spartacus” from the crowd.
Companies: BA/ BVC BLTG CHRT 9537 CNS DFX ECK EXPN GBG IGP MPAY NCC OSI SCH TERN
h1. Financial highlights
Order backlog of £36.8bn was down from £40.5bn but BAE believes that the company has reached the trough in terms of markets and the order book should start growing over the coming years, underpinning the future prospects for the business.
Sales grew to £17.9bn, up £1.3bn from 2014, as UK sales benefit by £0.8bn from increased aircraft deliveries to Saudi Arabia and sales from the trading of equipment on the European Typhoon programme and the increased activity across the naval business. Foreign exchange movements added some £0.2bn to BAE’s top line.
Underlying EBITA fell by £19m to £1,683m, as the reduced Typhoon production impacted revenues while BAE incurred an impairment and a rationalisation charge for its Australian shipyard. EBITA benefited from a positive £15m foreign exchange movement.
Underlying EPS grew by 2.2p to 40.2p, however this includes a 2.6p benefit from an overseas tax provision release and an additional 1.7p from a UK tax provision release. BAE’s final dividends stands at 12.5p per resulting in a full-year payment of 20.9p per share, a 2% increase over 2014.
h1. Group guidance
For 2016, BAE expects underlying EPS to grow by 5% to 10% based on the adjusted underlying of 36.6p in 2015. HQ costs should be in line with 2015. Finance costs should increase by £35m in 2016. Based on the expected geographic sales mix the effective tax rate is expected to increase to c.22%.
h1. Segmental results
h2. Electronic Systems
Sales for 2015 increased slightly to $4.0bn (£2.6bn) boosted by commercial sales, which now generate 23% of segment sales, with commercial revenues growing 7% in 2015. Defence revenues remained stable thanks to growing F-35 Lightning II production offsetting completed contracts. The segment maintained an RoS of 15.0% (15.4% in 2014) through strong programme execution and risk retirement. Cash conversion remained strong at 89% of underlying EBITA.
Segment 2016 guidance: Low single-digit sales growth is expected in 2016 with margins around the middle of an increased 13-15% guidance range.
h2. Cyber & Intelligence comprising the US Intelligence & Security sector (70% of Cyber & Intelligence sales in 2015) and Applied Intelligence
Sales grew 3% to $2.8bn (£1.8bn) as the US business revenues fell by 1%, mainly due to government IT services. The Applied Intelligence segment revenues climbed by 31%, with 13% resulting from the acquisition of SilverSky and 18% from organic growth coming from non-UK government customers. Segment RoS fell to 7.8% (from 9.2% in 2014) as a result of the increased investments in the Applied Intelligence business to support high growth. Cash conversion of underlying EBITA stood at 82%.
Segment 2016 guidance: Low single-digit revenue growth with flat sales in Intelligence & Security and solid double-digit growth in Applied Intelligence. Margins should stand within the 7-9% range, as the margin in Applied Intelligence recovers from high investment in product development in 2015.
h2. Platforms & Services (US):
Revenues fell a reported 4% to $4.2bn (£2.8bn), but by only 1% on a lfl basis as the segment registered higher than expected sales from ship repair activity and sales of munitions. Segment RoS improved to 6.4% from 4.4% in 2014. Weaker shipbuilding margins were offset by improving munitions contracts. Cash conversion stood at 56%, impacted by provision utilisation in commercial shipbuilding and on the CV90 Norway contract, in addition to the investment in a new dry dock facility in San Diego.
Segment 2016 guidance: Revenues to fall by c.10% as the naval ship repair activity will be impacted by the shift of the Navy to the West coast. Margins should however continue to improve to within a 7-8% range.
h2. Platforms & Services (UK)
Revenues recovered to £7.4bn up 12% thanks to increased Saudi aircraft deliveries, improved trading on the European Typhoon Tranche 3 programme and the Submarines business. Segment RoS stood at 9.7% as the 2015 result includes the impact from the announced Typhoon production slowdown decision.
The segment saw a cash inflow of £220m (2014 £173m) as advances outweighed consumption of customer advances on the Omani, Saudi and European Typhoon contracts.
Segment 2016 guidance: Sales should fall in line with planned lower Typhoon deliveries and increasing submarine workload should offset the reducing aircraft carrier revenues. BAE suggests that margins should be at the lower end of a 10-12% range.
h2. Platforms & Services (International)
Revenues came in at £3.7bn, up a reported 5% or (+9% lfl) thanks to higher support activity on the Salam Typhoon aircrafts and higher weapon systems volumes. RoS of 9% (10.2% in 2014) as EBITA fell to £335m (£366m in 2014) with the segment impacted by a £53m impairment charge from its Australian business. The segment generated cash flows of £164m (down from £881m) as the second payment under the Salam Price escalation came in but was negatively impacted by early receipts in 2014 and the utilisation of customer advances on the Saudi aircraft training programme.
Segment 2016 guidance: Sales growth c.5% in 2016 with increasing Typhoon aircraft support and margins at the lower end of a 10-12% range.
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Tekmar’s H1 results were well flagged in the 30th October update. Revenue was slightly lower YoY at £15.2m (H1’20: £17.1m), with EBITDA of £0.8m (H1’20: £2.0m), reflecting the impact of COVID-19. Whilst there continues to be some short term disruption, the COVID-19 backdrop is improving and we believe Tekmar is well placed to return to growth as its markets recover. The balance sheet is robust, with net cash of £0.7m, and demand is strong, with the enquiry book increasing by 21% YoY to £225m. Industry forecasts point to significant long term structural growth in Tekmar’s end markets and new CEO Ally MacDonald is conducting a strategic review focused on positioning the Group to capitalise on this. N+1 Singer has been appointed joint broker and we will initiate coverage in due course. We believe the historic EV/EBITDA rating of 7.7x is undemanding and see the current share price as an attractive entry point given the scale of the growth opportunity and strong recovery prospects.
Companies: Tekmar Group Plc
Today's news & views, plus announcements from AZN, LLOY, WEIR, TATE, GFTU, INCE, DELT, SOLG, HYVE
Companies: LLOY SOLG INCE
FY20 has been a transformational year for Avon Rubber as it exited from dairy and recycled the proceeds into higher-return businesses with better growth prospects to further strengthen Avon Protection. The redeployment of capital to form a more focused group should enhance value creation for shareholders. The $91m acquisition of Helmets & Armor on 2 January 2020 was joined by Team Wendy from 2 November 2020. Overall, our FY21 EPS estimate falls by 2% in FY21, although this still represents strong growth. The reporting currency will switch to US$ in FY21 as more than 90% of revenues are of US origin.
Companies: Avon Rubber p.l.c.
Ince has announced excellent interim results with promising trends for the near and medium term which bode well for the Group's earnings and cash progression. First half revenue has grown 6% YoY, a strong result considering the impact of COVID during the period.
Companies: Ince Group plc (INCE:LON)Ince Group plc (W1G1:BER)
H1/21A results reflect a period where COVID-19 impacted Q1/21 trading, masking over early signs of progress from the company's new strategic plan. Given activity rebounded during Q2/21 to pre-COVID levels, we expect a stronger H2/21E delivery and a profitable FY21E on flattish revenues. In FY22E, we expect to see material signs of progress in trading from strategic growth initiatives (housebuilding/EV/smart metering etc). Given these long-term drivers, we believe Fulcrum should be viewed as an attractive growth, rather than prior earnings quality, investment case.
Companies: Fulcrum Utility Services Ltd
Checkit has emerged from a period of corporate activity as a pure-play business focused on driving the adoption of its connected SaaS software, in particular its workflow management application. Checkit’s software is designed to enable smarter operations management, exploiting Internet of Things technology to connect people, processes and assets. With a proven ability to sign up blue-chip customers across a number of target verticals, growth in recurring revenues and an expanding customer base should help to close the valuation discount to software peers.
Companies: ECKTF CKT EKC
Cohort has completed the acquisition of ELAC Nautik from Wartsila for a headline consideration of €11.25m, as previously announced. ELAC extends Cohort’s maritime offering and has attractive medium- to long-term prospects. It will make an initial five-month contribution and should be modestly earnings enhancing. More detail should be available with interim results next week, but the lack of a trading comment suggests the ongoing activities remain on track to meet market expectations.
Companies: Cohort plc
The Group's cash generation and profitability remained robust in H1/21A despite the onset of COVID-19. This enabled the Group to pay down a further £8.2m of term loan principal, resulting in net debt declining 44.6% to £34.9m. In light of improving visibility in industrial electricity demand we release prudent FY21E and FY22E forecasts. We believe OPG is undervalued, trading at a c50% discount to its peer Group. We move our recommendation from Under Review to Buy.
Companies: OPG Power Ventures Plc
Seeing Machines has announced its FY20 results which show a steady underlying improvement in financial performance with the company surpassing our expectations set in May despite a highly challenging operating environment for the transportation sector. Looking forward, whilst the ongoing pandemic is continuing to affect the business, and we have tweaks to our divisional expectations to account for this, visibility into the path to profitability is increasing and the funding of this has been significantly de-risked by the recent US$20m placement to Federated Hermes Inc. With the risk reducing and the macro environment improving and considerable upside left in our numbers from Aftermarket, Aviation and further technology license deals, we reiterate our Buy and increase our DCF valuation to 8.6p.
Companies: Seeing Machines Limited
Volex has reported interim results that are in-line with expectations following a strong trading update in mid-October. Of far greater significance is today’s announcement of the proposed acquisition of DEKA for a consideration of up to €61.8m on a debt free basis. DEKA is a leading and highly profitable power cord manufacturer, strategically located in Turkey, that serves leading European white goods manufacturers. The acquisition should close in early CY2021, subject to expected Turkish Competition Authority approval. We foresee 15% earnings enhancement in FY2022E with further opportunities for revenue synergies with Volex in the Far East as its operations also vertically integrate, production efficiencies increase and the cost of production falls. The statement highlights that pro forma net debt/EBITDA remains under 0.4x and this provides scope for further bolt-on acquisitions alongside a new $70m RCF and $30m accordion, also announced with the interims.
Companies: Volex plc
This week the global specialist in technologies reported further successful test reports from the Laboratory of Virology at the University of Campinas, Brazil (Unicamp) on the Company's anti-viral nitrile gloves and polypropylene fabric facemasks, made with Symphony's d2pAM (antimicrobial) technology.
Companies: Symphony Environmental Technologies plc
Empresaria has issued a very encouraging update, confirming continued profitability in each month of H2 to date. Evidence of recovery is being seen across many parts of the Group. Whilst the pace of recovery remains slow, the COVID-19 backdrop is improving and the Group’s sectoral and geographical diversity continues to benefit its performance. Strategic initiatives continue to progress at pace, not least investment in new IT systems, positioning the Group for growth as its markets recover. Management now anticipates full year net fee income of £52m to £55m and adj. PBT of £4.4m to £4.9m, which we reflect by introducing an FY20 forecast. The Group is trading on a Dec. ’20 P/E rating of 11.6x on new forecasts, which looks undemanding to us given the depressed earnings level and the Group’s recovery prospects. Whilst we do not introduce FY21 forecasts at this stage, we would expect some advancement on the FY20 outturn given an improving backdrop.
Companies: Empresaria Group plc
The new ammendments to the UK CfD renewable energy support scheme opens up an opportunity for tidal energy to compete against floating offshore wind. We think the two technologies can deliver similar costs but that tidal, and specifically the already permitted capacity at Atlantis’s MeyGen site, has a marginal advantage in terms of readiness.
Companies: SIMEC Atlantis Energy Ltd.
Less than a fortnight after a major new contract announcement in West Africa, Capital has announced the expansion of its operations at Barrick Gold’s Bulyanhulu Gold Mine in Tanzania. The contracts include a five-year laboratory services contract for MSALABS, together with a two-year underground grade control drilling contract. Capital commenced operations at Bulyanhulu in February 2020, undertaking a deep hole delineation drilling program. The successful execution of this resulted in an expansion of services, with two underground rigs added to operations from May. The new contract will expand the underground fleet to four, utilising two rigs from the existing fleet and including the acquisition of a further two rigs.
Companies: Capital Limited
We launch coverage of IQGeo with its proposed acquisition of OSPInsight (OSPi). IQGeo is a Cambridge-based supplier of geospatial software for planning, building and maintaining dispersed network infrastructure. It sells this directly to global Tier 1 and 2 telecoms and utilities. It is raising £5.3m to help buy OSPi, a Utah-based supplier of similar systems to Tier 3 and 4 telcos, mainly in the US.
Companies: IQGeo Group PLC