BAE Systems Plc (BA/), which yesterday abandoned plans to merge with European Aeronautic, Defence & Space Co., said its business on a standalone basis remains “robust” and the company is on course to meet profit targets.
Adjusted earnings per share are set to show “modest growth” this year as long as price negotiations with Saudi Arabia over a fighter-jet order are concluded on time, the London-based company said in a statement today.
BAE and EADS called off merger talks after Germany failed to join France and the U.K. in backing the creation of the world’s largest aerospace and defense company by sales in which the British company would have been a junior partner. Ending negotiations has raised questions about the future of BAE.
“The key issue for BAE shares now will be to rebuild investor confidence around the earnings and dividend sustainability of BAE as a stand-alone entity,” said Ben Fidler, analyst at Deutsche Bank in London. A 500 million-pound share buyback “would be a positive catalyst,” he said.
Chief Executive Officer Ian King, who said he was disappointed that a combination with EADS failed, said today that “our business remains strong and financially robust.” BAE has “opportunities across our platforms and services offerings and in the various international markets in which we operate,” he said in a statement.
Investors accustomed to BAE’s high dividends were troubled by merger talks with EADS, which general has a lower payout. Invesco Ltd. (IVZ), BAE’s largest shareholder, questioned the logic of the deal before it crumbled.
A buyback “is something we would consider as and when the balance sheet allows,” Chairman Richard Olver said yesterday.
The U.K. defense market has stabilized after a period of government cutbacks though the threat of tightening budgets clouds the U.S. outlook, BAE said.
BAE rose as much as 0.8 percent and was trading at 322.90 pence at 8:20 a.m. in London. The stock is trading 1.8 percent below pre-merger levels.
The company said it still expects to complete negotiations this year to sell 12 Eurofighter Typhoon fighter jets to Oman. Eurofighter, the consortium including BAE, EADS and Finmeccanica SpA (FNC), also are targeting sales in Malaysia and other export markets.
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