Shares in BAE Systems plc demonstrated resilience in early London trading on Thursday, holding steady after a significant rally the previous day. The stock traded around 2,120.9 pence, marking a modest gain of approximately 0.5%, within a range of 2,088 to 2,122 pence. This stability follows a substantial upward revaluation across the defense sector, driven by investor confidence in long-term revenue visibility and shareholder returns.
Strong Financial Performance and Record Backlog
The company's full-year 2025 results provided the catalyst for recent momentum. BAE Systems reported a 10% increase in annual sales, reaching £30.66 billion. Underlying earnings before interest and tax (EBIT), adjusted for specific items, grew by 12% to £3.322 billion. A key highlight was the order intake of £36.8 billion, which propelled the total order backlog to a historic high of £83.6 billion. This immense pipeline offers unprecedented visibility into future revenue streams.
Free cash flow generation remained robust at £2.158 billion for the year. Reflecting this financial strength, the board recommended a final dividend of 22.8 pence per share, bringing the total dividend for 2025 to 36.3 pence.
Confident Outlook for 2026
Management provided optimistic guidance for the current fiscal year. For 2026, BAE Systems forecasts sales growth between 7% and 9%. Underlying EBIT and earnings per share are both expected to increase by 9% to 11%. The company anticipates free cash flow will exceed £1.3 billion. Chief Executive Charles Woodburn characterized the current environment as a "new era of defense spending," underscoring the sustained demand driving the sector.
Following the earnings release on Wednesday, the stock surged by 6%. Analysts at Jefferies described the figures as "solid," with particular emphasis on the strong cash generation. The share price has more than tripled since Russia's invasion of Ukraine in 2022 and had advanced roughly 18% year-to-date prior to Thursday's session. Even after this rally, the shares remain close to their 52-week peak of 2,159 pence, set on January 19. The company's market capitalization stands at approximately £61.5 billion.
Focus on Execution and Cash Conversion
Beyond the headline growth figures, investor attention is shifting to operational execution. The critical question is whether the company can efficiently convert its massive, multi-year defense programs into cash flow as manufacturing facilities scale up and supply chains deliver components on schedule. This conversion is vital for funding continued dividends and share buybacks.
Analyst Perspectives and Potential Risks
While the overall narrative is positive, some analysts offer a note of caution. Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, suggested BAE's 2026 guidance appeared "a touch conservative." He also highlighted inherent risks in long-cycle defense contracts, where rising costs can outpace fixed pricing agreements, potentially squeezing margins. Management itself has flagged potential supply-chain disruptions and production delays as key operational hazards.
Policy risk also lingers in the background. CEO Charles Woodburn has publicly urged UK government ministers to publish a long-delayed defense investment plan, arguing that the lack of strategic clarity is hindering necessary industrial investment.
Key Dates for Income Investors
For shareholders focused on income, the company has confirmed important dividend calendar dates. BAE Systems shares will trade ex-dividend on April 23, meaning buyers on or after this date will not be entitled to the final payout. The record date is set for April 24, with payment scheduled for June 4. The company also indicated it plans to release its half-year results on July 30.
The combination of a record order book, clear financial targets, and a commitment to shareholder returns continues to underpin investor confidence in BAE Systems, even as the market monitors the company's ability to navigate a complex operational and geopolitical landscape.
