Rolls-Royce and BAE Systems raised their profit forecasts on Thursday, citing higher government defence spending worldwide. Rolls-Royce's shares jumped 5% to lead the FTSE 100, while BAE Systems gained 2% after lifting its earnings guidance.
Rolls-Royce and BAE Systems lifted their earnings guidance on Thursday, citing government commitments to raise defence investment around the world. The upgrades sent both stocks higher and pushed Rolls-Royce to the top of the FTSE 100.
Rolls-Royce raises profit and cashflow guidance
Rolls-Royce, which makes jet engines for combat and commercial aircraft as well as turbines for ships, submarines and small nuclear power plants, lifted its forecast for underlying operating profit this year to £4.7bn-£4.9bn, up from a previous range of £4bn-£4.2bn. It also raised its free cashflow forecast to £3.8bn-£4bn from £3.6bn-£3.8bn. The company has benefited from higher defence spending since Russia's full-scale invasion of Ukraine in 2022, while its power generation unit has seen increased demand from datacentres used by AI companies. Revenue in its civilian jet engine business has also risen as long-haul flights recovered after the pandemic.
It told shareholders it should benefit from commitments made at the recent Nato summit, including for the Saab GlobalEye airborne early warning system and the MQ-4C Triton surveillance aircraft, both of which use Rolls-Royce engines. On defence, chief executive Tufan Erginbilgiç said, according to the Guardian: "I feel a lot better" on the visibility of orders after the UK published its defence investment plan. That plan confirmed spending on the Tempest fighter jet until 2030 and added £5bn for autonomous weapons. Rolls-Royce is also developing the engine for the Brontanax drone that BAE Systems unveiled last week, part of a wider push by weapons manufacturers to test large jet-powered drones as loyal wingmen alongside crewed fighter jets.
Rolls-Royce's share price rose 5%, leading the FTSE 100, while BAE Systems gained 2%.
BAE Systems upgrades earnings forecast
BAE Systems, which makes a large share of the UK's weapons from tanks and fighter jets to munitions, said sustained increases in defence budgets worldwide had led it to raise its outlook. It now expects earnings to rise by 10% to 12%, slightly higher than the 9% to 11% it had previously estimated. The company has benefited from demand in the US, which raised weapons spending even before its war on Iran, as well as from other export allies including several Gulf countries.
It also pointed to a contract to supply Turkey with training, support equipment and services for 20 Typhoon aircraft, and a deal with the US to quadruple production and accelerate delivery of the infrared seeker for the Thaad interceptor missile. It also holds a £5.9bn contract with the British government to complete the HMS Dreadnought nuclear deterrent submarine.
Source: Business | The Guardian
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