BAE Systems gains as broad market ends week higher

BAE Systems was a gainer on Friday as the FTSE 100 recorded a fourth straight daily rise.

An coming inflection in US and Europe defence budgets should move BAE’s revenue back into growth after many years of decline, Société Générale predicted. And with cash flow expected to improve this year, BAE’s dividend should still be covered even if payments to towards its pension deficit rise by a third, the broker forecast.

“BAE’s £37bn order backlog provides good multiyear visibility, and a growing US defence budget should be a major positive in 2017,” SocGen told clients. “In our eyes, against an uncertain economic backdrop BAE remains a steady and robust stock with an attractive 3.5 per cent dividend yield.”

Ahead of full-year results due February 23, BAE closed 2 per cent higher at 612p.

Miners underpinned a wider market rally after results from Boliden and ArcelorMittal impressed, and Chinese imports for January surprised on the upside. The FTSE 100 rose 0.4 per cent, up 29.25 points to 7,258.75, as Rio Tinto climbed 5.6 per cent to £35.73.

The FTSE 250 closed at a record high thanks largely to second-line miners such as Kaz Minerals, up 8.7 per cent to 570.5p.

Sage climbed 1.6 per cent to 647p after Exane BNP Paribas turned positive. The accountancy software maker has been the European sector’s worst performer on both a three- and 12-month view. The shares trade at an unmerited 16 per cent discount to peers, Exane told clients.

“The jury is out on the strategy,” said the broker. “But even without an acceleration at the top line, the recent pullback offers a good entry point for a stock with 11 per cent compound annual EPS growth from 2017 to 2019. Better trends (as of the second quarter) and the payment disposal are potential catalysts.”

Amec Foster Wheeler was 3.7 per cent higher at 461.3p after Redburn added the energy services group to its “buy” list with a 550p target. Redburn saw a chance that Amec would re-rate if management could stabilise the group, potentially with a £500m rights issue that would cut debt to 2 times ebitda.

Among the fallers, Reckitt Benckiser faded 3 per cent to £70.25 after bringing forward weaker than expected full-year results to coincide with its $18bn acquisition of Mead Johnson, the baby-food maker.

Reckitt also guided for 3 per cent organic revenue growth in 2017, well below a consensus forecast of 4.2 per cent, as it expects “macro conditions to remain challenging and for a number of existing headwinds to persist in the first half.”

Just Eat slipped 6.5 per cent to 518.5p after David Buttress, its chief executive since 2013, told the board he would step down at the end of March due to urgent family matters.