Rolls-Royce and BAE Systems have both raised their profit forecasts as global defence spending increases. The companies made these announcements on Thursday, citing commitments from governments to enhance their defence budgets. Rolls-Royce now expects an underlying operating profit between £4.7 billion and £4.9 billion for the year, up from a previous forecast of £4 billion to £4.2 billion. The firm also increased its free cash flow guidance from £3.6 billion to £3.8 billion to a new range of £3.8 billion to £4 billion.
Key Details
BAE Systems similarly reported a 9% year-on-year sales increase to £15.8 billion in the first half of the year, with orders rising to £16.4 billion, up £3.2 billion from the previous year. The company adjusted its profit outlook for the full year to an increase of 10% to 12%, slightly above its earlier estimate of 9% to 11%. BAE's Chief Executive Charles Woodburn noted that the global threat landscape remains volatile, prompting sustained increases in defence budgets.
Background
Both companies have benefitted from heightened demand for military equipment, particularly following Russia's invasion of Ukraine and rising tensions in the Middle East. Rolls-Royce's CEO Tufan Erginbilgiç highlighted the company's operational and strategic advancements, particularly in civil aerospace and defence sectors. Shares of Rolls-Royce rose by 5.5%, while BAE Systems saw a 1.1% increase on Thursday, contributing to a rise in the FTSE 100 index after an initial drop.
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The announcements are likely to bolster investor confidence in defence stocks, particularly Rolls-Royce and BAE Systems, as increased government spending on military capabilities could lead to higher revenues and profits for these companies. Investors will watch for further updates on defence budgets from key governments, especially following recent geopolitical developments.