Broker snap: UBS lifts BAE Systems target on Middle East potential

25th Sep 2013 11:17

UBS has raised its target price for aerospace and defence group BAE Systems from 450p to 490p and retained its 'buy' rating, saying that potential for business in the Middle East can offset a US downturn.The Swiss bank said it understands that a bid for up to 60 of BAE's Typhoons has been submitted to the United Arab Emirates (UAE). Analysts Charles Armitage and Rami Myerson said that win could be worth about 30p per share on a net present value basis. They see a 50% probability of a win and so this accounts for 15p of the target price increase."BAE Systems is unique in our defence coverage in that it has a large enough growth market in the Middle East (mainly Saudi Arabia) to offset the decline in the US defence. "We believe that the long awaited Saudi price escalation (Variation on Price or VoP) will be signed in H2 - given that this was first hoped for before the end of 2011 and then before the end of 2012, we believe that signature must reduce the risk - as investors require to be rewarded for risk, this should help the rating."The stock was up 2.22% at 460.9p by 11:24 on Wednesday.BC