Broker snap: UBS cuts BAE target as UAE deal falls through

20th Dec 2013 09:25

UBS has lowered its target price for defence group BAE Systems from 490p to 475p after the United Arab Emirates (UAE) withdrew its interest in buying 60 Eurofighter Typhoon jet fighters.The announcement, made at the close of trade on Thursday evening, comes as a major blow for the defence group which had been in talks regarding the £6bn contract for over a year."We believe that relations remain good and this opportunity could return at some stage, but are removing it from our price target," said Analyst Charles Armitage."We previously estimated the value to BAE Systems was 30p in net present value terms, to which we had allocated a probability (win) of 50% - as a result we are reducing our price target by 15p to 475p."Meanwhile, BAE also said in the statement that it is actively engaged in negotiations with Saudi Arabia regarding settlement of contractual pricing obligations under the government-to-government Salam Typhoon agreement. While a definitive agreement has not yet been reached, an announcement is expected to be made in the new year.Nevertheless, the company also said that it has concluded agreements with Saudi Arabia this month for the supply of guided weapons and Tornado maintenance and upgrades with a combined value of around £1.5bn.Armitage said that this is an indication that the relationship between BAE and the Saudis is "good" and that they "want to do business" with the company."We believe that relations with Saudi remain very good and that the price escalation will be signed resulting in a good contract for BAE (better delay and get a good contract than sign a bad one quickly)," he said.The bank maintained its 'buy' rating for the stock.The shares were down 4.93% at 420.2p by 10:26 on Friday.BC