There are not many industries enjoying the kind of tailwinds currently lifting defence, and BAE Systems PLC (LSE:BA.) is firmly in the slipstream.
Deutsche Bank has nudged up its price target on the shares to 2,220p from 2,170p, keeping a Buy rating, after the sector’s big jamboree, the Defence and Security Equipment International show.
Christophe Menard, the bank’s analyst, reckons the event “was a catalyst for the story”.
Governments are signing off on new programmes and orders are flowing. Just as important, the longer-term pipeline looks stronger thanks to announcements made during the week.
The operational picture also appears brighter. Higher volumes are coming through most divisions, which gives BAE what analysts like to call “operational leverage”.
In simple terms, when more kit rolls off the production line, margins improve because fixed costs do not rise in step. Automation and streamlined processes should add further support.
There is also a strategic angle. BAE used the show to unveil partnerships that are intended to speed up programme delivery and help spread risk, while promising a bit more innovation along the way.
The main reason for the higher target price, however, lies across the Atlantic, with a re-rating of the US defence sector feeding through into valuations.
BAE shares were up 0.5% at 1,991.44p.