UK defence companies are poised to benefit from further public spending as the effects of Russia’s invasion of Ukraine continue to resonate throughout Europe.
Babcock International PLC (LSE:BAB), Chemring Group (LSE:CHG) and QinetiQ Group PLC (LSE:QQ.) are among the companies Berenberg analysts believe could benefit thanks to the continued “favourable” environment for defence firms.
BAE Systems PLC (LSE:BA.) could also do well, with the stock eyeing a prospective 9.2% rise based on Berenberg’s share price target, though this is lower than peers’ anticipated jumps of around 30% each.
“We think the backdrop for the UK defence sector remains favourable, reflecting the heightened threat environment,” the bank noted.
This has driven the UK’s defence budget above the £50bn mark for the first time, up on 2022’s £45.9bn, as the Ministry of Defence works to ensure preparation for future conflict.
Berenberg anticipated BAE’s land business in particular could see significant growth in the coming years thanks to the UK’s rearmament spending.
Revenues in the wing could almost double to around £600mln in the next three years, the bank said, with Babcock and QinetiQ also set to do well given their high exposure to the UK.
Increasing donations of equipment directly to Ukraine has also ramped up the need for restocking the UK, Berenberg said, with the effects of these “beginning to materialise”.
Babcock, Chemring, QinetiQ and BAE all rose on Wednesday, climbing 0.5%, 2.7%, 1.9% and 1.4% respectively.