BAE share price up as Saudi Typhoon pricing saga settled

on Feb 19, 2014
Updated: Jun 1, 2022

Are you looking for signals & alerts from pro-traders? Sign-up to Invezz Signals™ for FREE. Takes 2 mins., Wednesday, February 19: Shares in BAE Systems Plc (LON:BA) have surged in morning trading in London today, since the defence contractor announced that it had agreed pricing with Saudi Arabia in the long-running Eurofighter Typhoon jet sale saga. The news comes with BAE preparing to unveil its full-year results tomorrow.

As of 09:05 UTC, BAE’s share price was up 1.67 percent to 444.90p, easing from the four percent gain to 455.10p earlier in the session.
**BAE agrees Salam deal with Saudi Arabia**
London-based BAE Systems said in today’s statement that the UK and Saudi governments had agreed price escalation terms relating to the Typhoon aircraft under the ‘Salam’ programme. BAE said that the terms have been incorporated into contractual arrangements between the company and the UK government, with cash settlement expected to follow the pricing agreement.

BAE Systems chief executive Ian King commented that there had been ‘an equitable outcome for all parties’.
“I am pleased that we have been able to conclude this negotiation which builds on our long standing relationship with this much valued customer,” King added.
Today’s agreement marks the end of protracted talks which had forced BAE to trim its earnings forecasts over the past couple of years. The £4.5 billion Salam deal dates to 2007, with BAE having agreed to supply 72 Eurofighter Typhoon jets to Saudi Arabia. While some aircraft have been delivered, the contract has encountered obstacles over soaring costs.

The Salam deal is particularly significant for the UK defence contractor, which in December revealed that the United Arab Emirates had walked away from drawn-out negotiations over a prospective order worth up to £6 billion for some 60 Typhoons. (BAE share price tumbles on double blow from the Middle East)

**Analysts on BAE Systems**

Deutsche Bank analysts last week reiterated their ‘hold’ rating on BAE Systems with a price target of 425p, while Espirito Santo Investment Bank Research reaffirmed the FTSE 100 defence contractor as a ‘buy’ with a price target of 510p. Earlier this month, UBS -which rates the company as a ‘buy’ – lowered its price target from 510p to 500p. BAE Systems currently has an average ‘buy’ rating and a consensus price target of 414.07p.

Due to post its full-year earnings tomorrow, BAE had previously warned that failure to settle pricing under the Saudi contract would erase six to seven pence from the company’s 2013 earnings per share. (BAE share price: Full-year profit hinges on renegotiation of Saudi deal)
Morgan Stanley expects BAE Systems to report full-year operating profit of some £1.92 billion, about six percent ahead of the consensus forecast, on revenues of about £19 billion.
The Financial Times today quoted RBC analyst Robert Stallard as saying that “with Salam cash coming in, this should give BAE more flexibility for cash deployment moving forward”.
**As of 10:03 UTC, buy BAE shares at 443.30p.**
**As of 10:03 UTC, sell BAE shares at 443.00p.**
Trade stocks with Hargreaves Lansdown from £5.95 per deal.
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