UBS has lowered its rating on BAE Systems (LON:BA), arguing that the grim UK economic outlook will inevitably impact the government's defence spending, Proactive Investors reports. The move came after the blue-chip defence giant reiterated its full-year outlook last month, saying at the time that with relatively limited UK-EU trading and movement of EU nationals into and out of the group’s UK businesses, the resulting Brexit near term impacts across the business were likely to be limited.
BAE Systems’ share price has surged in London in today’s session, having gained 2.96 percent to 458.70p as of 10:40 GMT. The stock is outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 1.74 percent higher at 6,820.38 points. The group’s shares have given up more than 17 percent of their value over the past year, as compared with about a seven-percent drop in the Footsie.
UBS no longer bullish on BAE
UBS downgraded BAE Systems from ‘buy’ to ‘neutral’ yesterday, and trimmed its price target on the shares from 720p to 505p. Proactive Investors quoted the analysts as arguing that the grim UK economic outlook will inevitably impact the government's defence spending, which could hit the blue-chip group’s performance.
“With circa 28 percent of its profits from the UK in 2017, we consider BAE to have exposure to budget constraints, including limited wriggle room to rationalise costs and improve margins,” the broker elaborated.
UBS further said that its analysis highlighted the ground which the British defence giant had lost in terms of US government contract obligations versus US peers of similar size, noting that BAE Systems “could be less well placed” than rivals to benefit from an enhanced defence budget stateside.
Other analysts on FTSE 100 group
Deutsche Bank, which rates BAE Systems as a ‘buy,’ lowered its valuation on the stock from 720p to 690p earlier this week. According to MarketBeat, the blue-chip defence giant currently has a consensus ‘buy’ rating and an average price target of 672.45p.