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Warning on Saudi Arabian Eurofighter contract spooks market

BAE Systems (BA.) 476.3p

Loss to date: 5.3%

Original entry point: Buy at 503p, 17 January 2019

Our positive call on defence firm BAE Systems (BA.) is off to a bad start after it warned that a German ban on arms exports to Saudi Arabia could put the multi-billion-pound sale of Eurofighter Typhoon jets to the Middle East country in jeopardy.

Germany is part of the four-country consortium behind the Eurofighter and its position could threaten a pending £10bn deal to sell 48 new jets to the Saudis.

The company is hoping these issues can be resolved by politicians. Chief executive Charles Woodburn says: ‘This is a political issue to be resolved at a political level.’

We flagged this issue as a key uncertainty when we analysed the investment case in our original article.

Arguably these attractions were evident in 2018 results showing operating profit up 14.3% to £1.6bn and order intake up to a record £28.3bn. The company also pointed to ‘mid-single digit’ growth in earnings in 2019.

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