Thursday preview: BAE Systems and Centrica report full year results

BAE Systems and Centrica are expected to report declines in full year profits on Thursday.

Deutsche Bank (DB) said it predicted defence gaint BAE Systems to reveal a 3.2% drop in 2015 earnings before interest and tax to £1.65bn. Underlying earnings per share are expected to be down 5% year-on-year to 36.2p, as the arms maker has a hard time winning export orders for its Eurofighter Typhoon fighter jets and as it struggles with its shipbuilding business.

DB said it predicted a one-off £90m charge for the Eurofighter Typhoon fighter jets, an estimated £30-35m charge on an Australia shipyard write-down and a further £20m shipbuilding contract charge.

“Against the current uncertain macroeconomic backdrop, BAE is likely to continue to hold attraction for investors, “ according to DB analysts.

“Although valuation has appeal (9.7x 2017E EV/EBIT, 4.5% dividend yield) and we recognize the 7-8% upside potential implied by our 505p target price, this is insufficient to merit more than a ‘hold’ rating, in our view.”

Key risks include slower than expected US budget growth and spending cuts in Middle East defence, DB added.

Meanwhile, Centrica is expected to post a 15% fall in adjusted operating profit to £1.4bn, reflecting a dip in wholesale gas prices.

Last week the group's firm British Gas said it would cut gas prices by 5.1% as energy suppliers in the nation come under pressure to pass on savings to customers following a 57% decrease in wholesale gas prices.

The Competition and Markets Authority has been investigating energy utilities in Britain after revealing last July that households were overpaying suppliers by around £1.2bn a year.

“We are sellers of Centrica as we believe that the continued declines in commodity prices will lower the profitability of the upstream activities, while a record warm winter in 2015 will impact volumes and profits in the downstream business,” said UBS analyst Alberto Gandolfi.

“At the same time, the CMA ongoing investigation still implies uncertainty on the medium term profitability of its supply activities.

Thursday 18 February

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