BAE Systems, Britain's largest defence contractor, has ended 2025 with the confidence of a company benefiting from the geopolitical anxieties of its age. In its latest market update, the group reaffirmed upgraded guidance and boasted a record order intake exceeding £27 billion, with sales and earnings expected to rise by around 9% from last year.
The firm's chief executive, Charles Woodburn, highlighted major wins, including a £4 billion Typhoon fighter deal with Türkiye and a prospective contract with Norway for Type 26 frigates. Together with sustained US demand - bolstered by the AUKUS partnership and missile-defence programmes - these orders give BAE visibility deep into the next decade. The order backlog now represents several years of work, ensuring steady cash generation and providing insulation from macroeconomic headwinds.
Source: BAE Systems with MarketScreener
Financially, BAE expects sales to climb 8-10% in 2025 to roughly £30.8 billion, while EBIT should increase by a similar margin to about £3.3 billion. Earnings per share are forecast to rise 8-10%, with free cash flow above £1.1 billion. Shareholders are not being neglected: some £1.5 billion will be returned this year through dividends and buybacks.
Analysts broadly endorsed the update. Morgan Stanley reiterated its overweight rating, with Ross Law citing "strong momentum" and shares that remain attractively priced. The bank took "particular comfort" from management's statement that the US government shutdown has had no material impact. Mediobanca, by contrast, kept an underperform stance. Alessandro Pozzi's team said trading was "in line with expectations" but noted that the £27 billion of orders booked so far trails its full-year estimate of £36.4 billion. Jefferies, maintaining a buy, judged orders "solid to date," adding that while the shutdown has yet to bite, prolonged delays could still affect contract funding or year-end payments.
That performance underscores the defence sector's transformation from cyclical to structural growth, driven by NATO's spending surge and renewed industrial policy. The UK and its allies are pouring money into air defence, submarines, and drones, areas where BAE's long-standing expertise gives it a strategic moat. Its investment in space and electronic warfare systems suggests an ambition to dominate the digital battlefront as well.
