Shares in European defence companies rallied in the last week after the US told Europe’s political leaders at a summit in Munich that they needed to increase military spending, signalling a major shift.
BAE chief executive Charles Woodburn told reporters today that any challenges to expansion could be overcome.
“I think that they are things we can handle, providing we get a clear demand signal,” he told reporters.
The British government is expected to set out plans for higher spending later this year and Nato members are expected to agree to raise their defence spending target above the current 2% of national output at a June summit of the alliance.
“Given the threat environment, the trend is moving upwards.
“We can plan provided we get some clarity on the medium and longer term requirements,” Woodburn said.
BAE has benefited from the rise in defence spending since Russia’s 2022 invasion of Ukraine, and has seen strong demand for combat vehicles and advancements in fighter jet, submarine and frigate programmes.
Its full-year results today showed it had secured £33.7 billion (US$42.5 billion) of orders in 2024, taking its backlog to a record £77.8 billion – three times its annual sales.
It said it was confident for the year ahead after it met forecasts with a 14% rise in both 2024 operating profit and revenue.
It expects its earnings to rise 8%-10% this year on sales up as much as 9%.
Shares in BAE Systems, which have risen 7% in the last 12 months, reached 1,369p today, the highest level since November.
They fell back 2% this morning.
“Today, nations are facing increasingly varied and complex threats to security.
“These growing threats have reinforced the essential nature of our work and highlighted the need for continued global investment in defence,” it said.
Matt Dorset, equity analyst at Quilter Cheviot said BAE stood to benefit significantly from the shift in defence spending.
“Not only will larger defence budgets drive demand, but Europe is also likely to focus on enhancing its own defence production capabilities rather than relying on US exports,” Dorset said.