BAE Systems hit a one-month high on Friday amid hopes that contract wins over the next few months could boost its order book by as much as a fifth.
Britain’s commitment to renew its Trident nuclear weapons programme puts BAE in line for a payment in excess of £1bn from the Ministry of Defence, possibly as early as September, said Berenberg.
The broker also anticipated that Saudi Arabia would order 48 Typhoon jets for around £4bn as well as renewing its support contract with BAE for a further five years, at a headline value of about £7bn.
If Saudi paid 15 per cent upfront for the Typhoon jets, it would cut BAE’s net debt to just £1.1bn, or six months of operating earnings, said Berenberg. It also argued that concerns around BAE’s pension deficit look overblown.
While the deficit is likely to widen from £2.6bn at next year’s triennial review, extending the recovery plan would mean cash contributions from BAE did not rise dramatically, Berenberg said. It put a 580p target price on BAE, which climbed 3.2 per cent to £10.80.
Miners underpinned the wider market after Federal Reserve chair Janet Yellen buoyed metals prices by saying US rate hikes would be gradual. The FTSE 100 rose 0.3 per cent, up 21.15 points to 6,838.05.
Glencore bounced 3.2 per cent to 185p, having been a faller on Thursday after it revealed a mark-to-market loss on coal hedging contracts. Rio Tinto climbed 3.3 per cent to £24.68 with Canaccord Genuity raising its target price to £31.30 on cost-cutting progress.
Amec Foster Wheeler, the energy industries engineer, jumped 6.6 per cent to 572.5p on an upgrade to “overweight” from Morgan Stanley.
Cost savings likely to be announced in mid-November “can outweigh the earnings dilution from the planned £500m disposal of assets, itself an important factor in the investment case to reduce balance sheet gearing to more sustainable levels”, said Morgan Stanley.
The potential for £100m of further annualised savings counteract lost earnings and make Amec’s valuation of little more than 10 times 2017 earnings look undemanding, it said, adding: “We expect the stock to re-rate as the cost savings story develops and the cycle continues to improve.”
Ladbrokes added 3.3 per cent to 162p after Berenberg turned positive. Its upgrade was in response to regulatory approval last month of Ladbrokes’ merger with Coral and progress selling shops to meet antitrust conditions.
Traders noted a speculative buzz around Smurfit Kappa, the Irish paper and packaging maker, which closed up 3.6 per cent to £19.49.
The stock has climbed nearly 9 per cent in four days, helped in part by sector peers International Paper and Hamburger pushing through price increases.
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