It's unusual for the head of a defense group to publicly congratulate himself on the decisions of political staff. Usually, it's the other way around - the criticism is of inadequate budgets and a lack of responsibility in the face of peril.

Not so for Charles Woodburn, BAE's Chief Executive. Behind the caricatures of soft power, he stresses that European leaders have taken full measure of the stakes, and that the Old Continent has firmly pulled itself together. The same buoyant winds are blowing in from Oceania, thanks to the AUKUS program and the Anglo-Saxon determination to retain control of the Pacific.

BAE, like its peer Rheinmetall, is emerging from a long period of lethargy, thanks to British and German rearmament - even if, in both cases, the equipment produced is mainly destined for export - and the return to prominence of NATO. And yet, less than five years ago, Emmanuel Macron described the Atlantic Treaty organization as "brain-dead"... How quickly everything changes.

In addition to the F-35 program, which provides BAE with recurrent working capital and excellent margins, the year was marked by new contracts for nuclear submarines; the acquisition of Ball Aerospace in the United States; the launch of the GCAS in cooperation with Japan and Italy; and record sales momentum in all segments, including vehicles and munitions - the Group's traditional poor relations.

These favorable developments are already largely reflected in BAE's stock market valuation. Its market capitalization has doubled since the invasion of Ukraine, and now stands at £38 billion. Against this backdrop, the Group plans to generate £5 billion in cash profits - or "free cash flow" - over the next three years. If it keeps up this pace, this would bring its valuation to x23 its profit.

The market is already embracing the "new normal", and probably rightly so, since BAE is set to double its sales in 2025 compared with ten years ago. With a net margin assumption typical for the sector, it is not impossible to envisage an annual earnings capacity of between £2.5 and £3 billion over the next decade.

This outlook perfectly supports our current valuation. BAE remains optimistic: the British company has bought back 4.4% of its outstanding shares over the past two years, and has just renewed its share buyback program for 2024.

Defense is a business with long cycles: slack periods can last a long time, but so can periods of intense activity.