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BAE Systems upgrades outlook as Ukraine war boosts defence spending

FILE PHOTO: A sign adorns a hangar at the BAE Systems facility at Salmesbury

By Sarah Young

LONDON (Reuters) -Britain's biggest defence company, BAE Systems, lifted its earnings guidance on Tuesday after reporting "very strong" orders for 2022, and forecast more growth next year as the war in Ukraine boosts military spending.

New orders include a 4.2 billion pound ($4.97 billion)contract announced by Britain on Tuesday for BAE Systems to build five ships for the Royal Navy.

The builder of submarines, fighter jets and combat vehicles said that the strengthening of the U.S. dollar this year, and a buyback of the company's shares, would help lift underlying earnings per share (EPS) by 11% to 13% for 2022.

Previous guidance on a constant currency basis had been for EPS to grow by 4% to 6% this year.

The Ukraine war has boosted defence spending globally and BAE said despite worsening economic conditions the commitment to defence in its major markets of the United States, Britain, Saudi Arabia and Australia remained robust.

It forecast another year of top line growth and margin expansion in 2023.

"We see sales growth coming from all sectors and opportunities to further enhance the medium-term outlook as our customers address the elevated threat environment," Chief Executive Charles Woodburn said in a statement on Tuesday.

BAE shares rose 3% to 748 pence in early morning trade. The stock is up 36% since the beginning of the year, outperforming Britain's blue-chip index which is flat.

Britain, BAE's second biggest market by sales behind the United States, has committed to increase defence spending to 3% of GDP by 2030 but a deterioration in the national finances has led to speculation that the target could be scrapped in a budget statement due on Thursday.

Earlier on Tuesday Britain confirmed a long-planned order for type 26 anti-submarine warships, a deal worth 4.2 billion pounds to BAE, supporting shipbuilding facilities in Scotland into the 2030s and more than 4,000 jobs across the UK.

Jefferies analysts said that the updated guidance was 1% ahead of consensus.

"Operating comments are solid, pointing at solid execution and easing labour tensions," they said.

($1 = 0.8455 pounds)

(Reporting by Sarah Young; editing by James Davey and Susan Fenton)