View from City Road: Hang fire on BAe shares

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The Independent Online
UP ANOTHER 21p to 274p yesterday, British Aerospace shares have risen by two- thirds since the beginning of the year as the signing of Al Yamamah 2 laid to rest the last of the three ghosts that haunted the shares so much in 1992. After such a sharp rise is it time to bale out?

The starting point, ignoring bold estimates of break-up value (do we hear 500p?), must be the dividend payment for 1992.

Core defence earnings, if artificially smoothed, have been underwritten by the Saudi Tornado order and could generate up to pounds 300m a year. Against that must be set continuing losses on advanced turbo-prop aircraft and Rover. Losses on regional jets have been subsumed in the pounds 750m net provision made in September of which up to pounds 200m could be clawed back, post the Taiwan deal, to pay for further restructuring of the ATP and Jetstream business.

The drop in sterling, since BAe has sold off its forward cover, will make civil aircraft manufacture much easier. Bulls are pencilling in pounds 150m pre-tax for 1993 or 30p of earnings and pounds 250m in 1993.

BAe does not share the City's habit of deducting substantial advance customer payments - whereas it says it has net cash the City says 55 per cent gearing. Another pounds 500m top-up from the Saudis would help to offset cash outflows on Airbus work.

Enthusiasts are now talking of a 9p not 6p dividend for 1992 or a yield of 4.5 per cent rising to 6 per cent for 1993, taking account of a delayed interim payment from 1992. But it might be wiser to wait to hear what the company has to say on current trading when it announces its figures on 24 February before making a move on the shares.