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The stock is up more than 12% since we said to buy at the start of the year

BAE Systems (BA.)

Gain to date: 12%

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

Shares in aerospace and defence contractor BAE Systems (BA.have continued to make steady progress following first half results which showed healthy growth in revenue, earnings and margins.

Defence spending is rising in the US, where BAE is winning more work, and among NATO countries such as the UK, the Netherlands and the Baltic states.

In the US, major multi-year contracts include the F-35 fighter, which uses BAE’s short take-off and vertical landing technology, and the latest generation of armoured multi-purpose vehicles for the US Army.

Meanwhile a deal to supply Qatar with Typhoon fighters has been accelerated and closer to home work for the Navy continues with the new ‘Prince of Wales’ aircraft carrier and the fourth Astute-class submarine due to undertake sea trials soon.

Better sales growth and improved visibility of earnings has led to a 25% re-rating in the shares this year, putting them on 14 times earnings against 11-times in January, but they still look attractive compared with US rivals Lockheed Martin and Northrop Grumman which trade on 18 to 19 times earnings.

SHARES SAYS: While a ‘hard’ Brexit doesn’t present a major business risk, there is still political risk in the UK should Labour win a general election and risks around doing business with Saudi Arabia remain. On balance we are still happy to continue buying the shares.

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