BAE Systems Shares (LON:BA) Dip On Strong H1 – What Happened?

BAE Systems shares (LON:BA) have pulled back 3.5% this morning as the UK's leading defense and aerospace giant released strong H1 results. The decline in share price could be an element of profit taking, but also due to markets being disappointed in the size of the guidance raise, and a slowing in share buybacks.

With the share price having gained 52% since the start of the year, and pulling up just short of 2,000, a pause for breath in the rally could have been expected at some stage.

The company's first-half 2025 results outline what appears to be a business firing on all cylinders, with an upgrade to full-year guidance by 1% on both ends of the range. Judging by markets' reaction this morning, analysts may have been looking for more.

Back to current operations, and Chief Executive Charles Woodburn attributed the strong showing to the dedication of BAE's teams and the company's ability to deliver critical capabilities to armed forces worldwide.

He emphasized the strategic investments in personnel, technology, and infrastructure aimed at enhancing efficiency, capacity, and agility to meet the growing demand for BAE's products and services.

The numbers speak for themselves.

Sales for the first half of 2025 jumped by 11%, with organic growth reaching an impressive 9%. Underlying EBIT climbed by 13%, pushing the Group's return on sales to a healthy 10.6%.

Underlying EPS also saw a significant increase of 12%, reaching 34.7p. While the company reported a free cash outflow of £368 million, this was anticipated due to movements on customer advances and remains in line with expectations.

The most compelling figure, however, is the order intake.

BAE Systems secured a staggering £13.2 billion in new orders during the first half, resulting in a record order backlog of £75.4 billion. This massive backlog provides significant revenue visibility and underscores the long-term demand for BAE's capabilities.

This includes the recent additional £1 billion in funding from the UK government for its collaborative next-generation fighter jet project with Italy and Japan.

In light of this exceptional performance, BAE Systems has raised its full-year guidance. Sales are now projected to increase by 8% to 10%, up from the previous forecast of 7% to 9%.

Similarly, underlying EBIT is expected to grow by 9% to 11%, an increase of 100 basis points from the earlier guidance. While the company anticipates fewer share repurchases due to the rising stock price and a slightly higher tax rate, the EPS growth forecast remains unchanged at 8% to 10%. The free cash flow target remains above £1.1 billion.

Despite these potential challenges, BAE Systems appears well-positioned to continue its strong performance. The company's robust order book, upgraded guidance, and strategic investments in future technologies suggest a bright future for the defense giant.

As the world grapples with increasing uncertainty, BAE Systems' role in providing essential security solutions is likely to remain crucial, making it an attractive option for those seeking exposure to the growing defense sector.