The world is re-arming is Liberum’s take on the engineering sector, so buy defence companies and avoid civil aerospace groups.
Seemingly timed to coincide with Donald Trump’s US presidential inauguration, Liberum’s picks for the sector reflect the theme.
The new president had already vowed to strengthen the US military but has also warned its allies they must increase their spending.
As a result, the broker sees rising defence spending for a decade, t which should be good for submarine specialist Ultra Electronics Holdings PLC (LON:ULE) and that gets an upgrade to buy and a new target price of 2,160p (1,950p).
The two other defence buys are reaffirmed though Chemring (LON:CHG) is seen as firmly in recovery mode so it gets a higher target price of 192p, while Cobham’s (LON:COB) problems see the target trimmed to 150p though the broker remains confident longer term.
The downgrades are civil aerospace related as Liberum believes record orders currently may be masking some growing underlying problems.
Airline profitability may have peaked suggests the broker while Airbus and Boeing have already started to lower widebody aircraft production.
That and risks to car demand means GKN PLC (LON:GKN) is now a sell, while Meggit PLC (LON:MGGT) is also downgraded for similar reasons even with the outside chance of a bid.
Of the rest, sector leader Rolls-Royce PLC (LON:RR.) gets a target price upgrade to 670p on better cashflow visibility but there is still no compulsion to buy suggests the broker so hold remains its view.