BAE Systems weighed down as UBS cuts rating and shares go ex-dividend

16th Apr 2015 10:56

Shares in aerospace and defence group BAE Systems were trading lower on Thursday after the stock went ex-dividend, though UBS was providing further downwards pressure after cutting its rating from 'buy' to 'neutral'.The bank said it was "taking a breath" after a strong performance in the shares has put BAE close to its target price."As the share price approaches our price target of 540p, we do not believe there is sufficient upside potential to maintain the 'buy' rating and are downgrading to 'neutral' and removing from the UBS Key Call list," UBS said.The bank also said that sentiment could also potentially be hurt by a less-than-expected increase in the US budget and fears over budget cuts in the UK."We believe that the recent proposed 8% yoy increase to FY16 US budget will likely run into the sequestration wall and ultimately expect 2-4% growth. [...] Meanwhile, we are increasingly concerned about the outlook for the UK defence budget - in their manifestos, neither major party committed to 2% of GDP defence spend, while the SDSR is expected later in the year and is unlikely to be positive as we expect it to be budget driven rather than threat driven," it said.Nevertheless, UBS said it remains optimistic that a Saudi Batch 2 Typhoon order could come through this year or early 2016, while cash returns at BAE continue to be attractive.The shares were down 1.2% at 514p by 10:55.