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From: Dale
ArtDate: 12 September 2002
Section: (DALRIC'S HOT COMMENTS)
Remote Name: 195.92.168.174
Date: 09/10/02
Time: 22:24
British Aerospace vastly oversold? by Ric Wilson 12th September 2002
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British Aerospace, which closed at 271p last night, and had been trading at over £3 as recently as the week before last, has today taken a massive mark down of some 50p as I write this article, although it is trying to move back up and quite a few buys are now going in.
The drop was caused by their half year Interims not coming up to analyst estimates, showing half year earnings of £461 million compared to the estimates of Schroder Salomon Smith Barney at £535 mil. SSSB downgraded their stance from "Outperform" to "In Line" on these Numbers. Cazenove analyst Simon Pilkington reiterated his "Hold" recommendation, noting that the numbers were in line with his forcasts.
SSSB also noted that the provision of £30 mln for the pension fund (which is a hot potato) in 2003, and thereafter £60 mln per anum was not good news. Elsewhere, Dresdner Kleinwort Wasserstein and Deutsche Bank are both understood to have reiterated their "Buy" recommendations on the stock.
Therefore, in my honest opinion, once the dust has settled on the US unemployment figures issued today, and Greenspans forthcoming speach later today, this stock could represent a very good oportunity to get on the bandwagon once it turns, perhaps approaching the £3 mark again. It is a strong company and careful research on its position in Missiles Avionics here and in the US is required on R N S, AFX and Sharecast etc. One must also consider George Bush's speech to the UN today regarding Iraq.
I hold no position in this stock but it does look extra good value at these prices to me but as always dont be greedy.
Extract from Today's RNS is as follows:
BAE SYSTEMS PLC 12 September 2002
Interim Report 2002
BAE SYSTEMS
The systems company innovating for a safer world.
Overview
• Performance in the first six months supports our plans for the full year.
• Interim dividend increased by 5.7%.
• Strong performance from our North America and Customer Solutions & Support business groups and at Airbus, together with an improving position in our Air Systems activities, enables us to maintain our plan for 2002 despite pressures elsewhere in the company.
• We continue to plan for a resumption of growth in 2003, although we face a number of challenges.
• Outlook depends on the impact of the change in programme emphasis as a result of the New Chapter to the Strategic Defence Review, which places greater emphasis on Network Centric Capabilities. As the creation of our C4ISR(3) business demonstrates, we see this as a major growth area and opportunity for the company.
• Order book(1) £42.9bn
• Sales £5,703m
• Profit before interest(2) £461m
• Earnings per share(2) 7.7p
• Dividend per share 3.7p
• Operating cash outflow £262m
• Net debt £1,551m
(1) including joint ventures and after the elimination of inter-business group orders
(2) before goodwill amortisation and exceptional items
(3) Command, Control, Communication and Computing, Intelligence, Surveillance and Reconnaissance
Dear Shareholder,
The first half performance demonstrates the resilience of BAE SYSTEMS in a period where we have had to address a number of unforeseen issues.
Strong performance from our North America and Customer Solutions & Support business groups and at Airbus, together with an improving position in our Air Systems activities, enables us to maintain our plan for 2002 despite pressures elsewhere in the company.
To complement our strong presence in Europe, we continue to seek to expand our position in North America, which is where we see most opportunity for significant growth. In pursuit of this strategy, we recently embarked on a bid for the defence businesses of TRW. Whilst unsuccessful, we gained valuable experience from the process and we shall continue to look at value enhancing opportunities to develop our North America business group as they arise.
We continue to plan for a resumption of growth in 2003, although we face a number of challenges. In particular, the outlook depends on the impact of the change in programme emphasis as a result of the New Chapter to the Strategic Defence Review, which places greater emphasis on Network Centric Capabilities. As the creation of our C4ISR business demonstrates, we see this as a major growth area and opportunity for the company.
We have also seen a reshaping of our senior management team. As chief executive, Mike Turner brings his own skills and strengths to the role, building on John Weston's good work. We have recently appointed two new executive directors. Following HM Government's relaxation of nationality controls, Mark Ronald, a US citizen and president of our North America business group, joined the board in May. Chris Geoghegan, chief operating officer, joined the board in June.
The abilities and dedication of every member of BAE SYSTEMS has ensured that we have achieved the progress made over the first half year, and I am grateful for the team's commitment.
Sir Richard Evans Chairman 11 September 2002
Chief executive's review
Performance in the first six months supports our plans for the full year, despite some change in the mix of contributions from the businesses. We anticipate a stronger performance in the second half year.
In the Programmes business group, military aircraft activities responded to the remedial actions taken in 2001, but progress here was more than offset by significant short-term challenges in certain residual UK shipbuilding programmes that incurred contract losses in the first half. We see a positive future for our Air and Sea Systems businesses, supported by strong order books leading to a commensurate increase in activity.
Our Customer Solutions & Support business group has performed strongly. Activity on established support packages remains high and we have been awarded a number of longer-term integrated platform support packages on Tornado aircraft. Similar plans are being developed across other in-service platforms as we support the drive of the UK Defence Logistics Organisation for cost efficiencies. Other notable highlights included an 11 year extension to our partnership with the Royal Navy at the Portsmouth naval base.
The performance of a number of our International Partnerships continued to be disappointing, particularly the Astrium space systems joint venture where losses have increased. Disposal of our interest in Astrium was announced in July and we expect to complete this transaction by the end of the year. Notwithstanding the disposal of our interest in Astrium, which is subject to the satisfaction of a number of conditions, sales in the second half will be significantly higher across the remaining International Partnerships businesses, most notably at MBDA where around 75% of the year's sales are planned for the second half.
The Avionics business group profitability for the first half has been negatively impacted by one-off charges associated with two contracts, primarily related to equipment delivery delays, together with restructuring costs. Sales at Avionics increased by 6% during the first half and, as last year, will be skewed to the second half. Deliveries of radar sets and Defensive Aids Sub-Systems (DASS) for Eurofighter Typhoon are planned to be significantly higher in the second half and will contribute to good sales growth for 2002.
Our North America business group continues to perform well. The reported sales growth was 5%. However, the first half of 2001 included disposed businesses, and on a like-for-like basis, sales growth was 10% and profit increased by 7%. North America is well positioned to capture more growth from the increasing US defence budgets.
In the Commercial Aerospace business group, our Airbus joint venture has performed ahead of expectations in a difficult market. This underlines our view that this is a high quality business that will deliver longer-term profitable growth. Airbus has benefited from its restructuring last year into an integrated company, and its management team has coped well with the market downturn. Aircraft deliveries in the first half are on track for the planned 300 for the full year. A detailed review of airline customer demand has indicated planned deliveries for 2003 at a similar level. However, a number of airlines are experiencing significant financial challenges, and we will continue to monitor the position. Development of the high capacity A380 continues to plan.
Finally, I want to thank the BAE SYSTEMS team for its support in my first few months as chief executive.
Mike Turner Chief executive 11 September 2002
Although this article is written in my honest opinion, it is not Investment Advice and must not be construed as such. Although I currently hold no position in BAE Systems, it is still essential that you do your own research very carefully as always.
Ric Wilson 12th September 2002 15:00 hours
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