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Berenberg cites 'growing pains' in BAE Systems downgrade

Tue, 3rd Oct 2017 10:42

(ShareCast News) - Berenberg downgraded UK defence contractor BAE Systems to 'hold' from 'buy', with analysts at the German bank saying there is little room for growth in the next two years.

Berenberg also reduced the FTSE 100-listed company's target price to 600p from 700p.

Following a meeting with the management team, analysts said the absence of a firm export order for the company's Typhoon programme was a key factor in the downgrade.

"This may result in a further slowdown of delivery rates which could generate negative sentiment around BAE's largest franchise programme," Berenberg said.

"If no further Typhoon export orders are secured within the next 12 months, we see a further 3% EPS headwind in FY 2020, although this is outside of our current forecast."

While it still sees BAE as an "attractive" investment option, its lack of earnings momentum is a significant hamper on its progress in the near future.

Falling UK gilt curves are also likely to drive a higher deficit, the analysts added, adversely affecting BAE's share price.

BAE Systems was one of the biggest fallers on the FTSE 100, down 1.51% to 1,366p at 1138 BST.

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