BAE Systems (BA/ LN): Issues to consider
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Background
BAE makes complicated, innovative cool stuff for the UK, US and Saudi governments. For more details: www.baesystems.com/en/feature/more-than-a-sum-of-its-parts Since 2012, the stock is up 70%, however the balance sheet has deteriorated with current assets rising from GBP2.9 to GBP6bn despite flat revenue whereas payables have been flat. We thought it was worth a look. Issues to consider BAE used to get paid up front, hence the negative working capital. Today, it is being paid on a "As work is done basis". The good news is revenue and profits should be more reliable, the bad news is that it requires a larger balance sheet. BAE still has a large pension deficit. Funding this takes up a material amount of cashflow and the liability is vulnerable to changes in assumptions. BAE is almost totally dependent on the UK, US and Saudi governments military spending Dividends have grown faster than pre-financing cashflow. In 2019, pre-financing cashflow will barely cover the dividend. Capex exceeds depreciation although revenue growth has been flat and the depreciation rate has fallen. Please contact us, if you would like to become a client and get a full copy of the report. |
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Important
This note is written with the sole purpose of highlighting some issues we think are important.
It is not a recommendation to BUY or SELL any of the securities mentioned and should not be taken as such.
Readers should form their own opinions about the company and seek appropriate advice.
Please read the Bucephalus disclaimer.
This note is written with the sole purpose of highlighting some issues we think are important.
It is not a recommendation to BUY or SELL any of the securities mentioned and should not be taken as such.
Readers should form their own opinions about the company and seek appropriate advice.
Please read the Bucephalus disclaimer.