Ukraine War, Global Tensions Lift European Arms Makers’ Orders, Share Prices
LONDON—Europe’s defense contractors are boosting orders and enjoying surging stock market valuations, lifted by higher government spending and the expectation of more sales to come as the Ukraine war grinds on.
BAE Systems
BAESY -0.88%
PLC, Europe’s largest defense contractor, was the latest in a parade of big arms makers to post a large jump in annual orders for 2022. It joined peers such as Sweden’s
Saab
AB and Norway’s
Kongsberg Gruppen AS
A in benefiting from generally higher military spending around the world—particularly from some European countries—amid the Ukraine war.
Consulting firm McKinsey & Co. estimates that European military spending, which has already ticked higher in recent years, will increase 53% from 2021 to 2026 to $481 billion, potentially as much as 65% to $519 billion.
“In Europe, where the threat level is acute, the need for new equipment is most urgent,” BAE said in a statement accompanying its earnings Thursday.
Charles Woodburn,
the company’s chief executive, said that while most of the record order book was related to longer-term projects, such as submarines and naval ships, the effect of Ukraine was starting to show through.
“With the amount of equipment going [into Ukraine], there are now customers around the world who are looking to replenish those stocks,” he said in an interview.
Shares of European defense companies have outperformed those of U.S. peers. American arms makers have also posted strong order books as they benefit from a slice of the $27 billion in military equipment committed by Washington to Ukraine.
U.K.-based BAE said Thursday that it secured orders of 37.1 billion pounds, or about $44.7 billion, last year, giving it an order book of £58.9 billion. It posted revenue of £21.3 billion, up 8.9% from the year before and slightly ahead of analysts’ expectations. Still, operating profit was £5 million lower at £2.4 billion amid inflationary and supply-chain pressures.
The group forecast an increase in earnings of 5% to 7% for 2023. Shares in the company, which hit a record high earlier this week, were down 3.4% in early London trading Thursday. Although BAE delivered a strong set of results, its outlook was below consensus, Berenberg analysts wrote in a note.
BAE makes a range of military hardware and software, mainly in the U.S. and U.K. The company is a partner in the production of the Typhoon jet fighter. It makes the U.K.’s nuclear-armed submarines and many of the country’s warships and tanks. It also makes the U.S.-operated Bradley fighting vehicle, among other hardware.
Some of its equipment is either in operation in Ukraine, like its M777 howitzer, or is set to be, including the Bradley and Challenger 2 tank.
Earlier this month, Saab—which designed the NLAW antitank weapon, a symbol of Ukraine’s early resistance to Russia—reported an increase in orders of 45% in 2022 over the year before. It said it expects double-digit sales growth this year. Revenue at the defense and space division of
Airbus SE
increased 11% in 2022. Norway’s Kongsberg, which makes missiles, as well as surveillance and other equipment, reported a 21% increase in earnings for 2022, with over a billion dollars worth of new missile orders alone.
Those orders are translating into outsize gains on the stock market. Investors are, in part, betting that with the war closer to home, European arms makers will benefit more from high local defense budgets.
Shares in BAE are up 52% since the war began. Italy’s
Leonardo
SpA, which makes helicopters and is part of the Typhoon consortium, is 60% higher. Saab is up 161%, and Germany’s
Rheinmetall AG
is 156% higher.
Rheinmetall makes ammunition and the Leopard tanks that European countries are shipping to Ukraine. It recently agreed to buy a Spanish peer in an effort to boost production capacity.
In contrast,
Lockheed Martin Corp.
shares are up 24% since the start of the Ukraine war, and
General Dynamics Corp.
is 8% higher.
Northrop Grumman Corp.
has risen 20%.
Write to Alistair MacDonald at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
LONDON—Europe’s defense contractors are boosting orders and enjoying surging stock market valuations, lifted by higher government spending and the expectation of more sales to come as the Ukraine war grinds on.
BAE Systems
BAESY -0.88%
PLC, Europe’s largest defense contractor, was the latest in a parade of big arms makers to post a large jump in annual orders for 2022. It joined peers such as Sweden’s
Saab
AB and Norway’s
Kongsberg Gruppen AS
A in benefiting from generally higher military spending around the world—particularly from some European countries—amid the Ukraine war.
Consulting firm McKinsey & Co. estimates that European military spending, which has already ticked higher in recent years, will increase 53% from 2021 to 2026 to $481 billion, potentially as much as 65% to $519 billion.
“In Europe, where the threat level is acute, the need for new equipment is most urgent,” BAE said in a statement accompanying its earnings Thursday.
Charles Woodburn,
the company’s chief executive, said that while most of the record order book was related to longer-term projects, such as submarines and naval ships, the effect of Ukraine was starting to show through.
“With the amount of equipment going [into Ukraine], there are now customers around the world who are looking to replenish those stocks,” he said in an interview.
Shares of European defense companies have outperformed those of U.S. peers. American arms makers have also posted strong order books as they benefit from a slice of the $27 billion in military equipment committed by Washington to Ukraine.
U.K.-based BAE said Thursday that it secured orders of 37.1 billion pounds, or about $44.7 billion, last year, giving it an order book of £58.9 billion. It posted revenue of £21.3 billion, up 8.9% from the year before and slightly ahead of analysts’ expectations. Still, operating profit was £5 million lower at £2.4 billion amid inflationary and supply-chain pressures.
The group forecast an increase in earnings of 5% to 7% for 2023. Shares in the company, which hit a record high earlier this week, were down 3.4% in early London trading Thursday. Although BAE delivered a strong set of results, its outlook was below consensus, Berenberg analysts wrote in a note.
BAE makes a range of military hardware and software, mainly in the U.S. and U.K. The company is a partner in the production of the Typhoon jet fighter. It makes the U.K.’s nuclear-armed submarines and many of the country’s warships and tanks. It also makes the U.S.-operated Bradley fighting vehicle, among other hardware.
Some of its equipment is either in operation in Ukraine, like its M777 howitzer, or is set to be, including the Bradley and Challenger 2 tank.
Earlier this month, Saab—which designed the NLAW antitank weapon, a symbol of Ukraine’s early resistance to Russia—reported an increase in orders of 45% in 2022 over the year before. It said it expects double-digit sales growth this year. Revenue at the defense and space division of
Airbus SE
increased 11% in 2022. Norway’s Kongsberg, which makes missiles, as well as surveillance and other equipment, reported a 21% increase in earnings for 2022, with over a billion dollars worth of new missile orders alone.
Those orders are translating into outsize gains on the stock market. Investors are, in part, betting that with the war closer to home, European arms makers will benefit more from high local defense budgets.
Shares in BAE are up 52% since the war began. Italy’s
Leonardo
SpA, which makes helicopters and is part of the Typhoon consortium, is 60% higher. Saab is up 161%, and Germany’s
Rheinmetall AG
is 156% higher.
Rheinmetall makes ammunition and the Leopard tanks that European countries are shipping to Ukraine. It recently agreed to buy a Spanish peer in an effort to boost production capacity.
In contrast,
Lockheed Martin Corp.
shares are up 24% since the start of the Ukraine war, and
General Dynamics Corp.
is 8% higher.
Northrop Grumman Corp.
has risen 20%.
Write to Alistair MacDonald at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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