2nd Oct 2023 11:02
(Alliance News) - The European defence sector has a strong outlook, and London-listed BAE Systems PLC is among those that stands to benefit, German bank Berenberg predicted.
Berenberg said order intake in the defence industry has "stepped up" since the second half of last year. It believes the likes of BAE, as well as Dassault Systemes SE, Rheinmetall AG and Thales SE have an order pipeline worth at least 75% of their current defence backlogs.
The German bank believes BAE will be able to put money into M&A action, while also having enough in its coffers to reward shareholders.
Berenberg predicts 10% compound annual revenue growth for BAE to 2027.
Highlighting how promising the outlook for defence is, the UK signed contracts worth GBP4 billion to finance a new phase of the SSN-Aukus next-generation attack submarine project, according to government officials.
BAE is among those involved, alongside Rolls-Royce Holdings PLC and Babcock International Group PLC.
The deals are part of the Aukus military alliance between the US, Australia and the UK to counter China in the Asia-Pacific region.
Aukus leaders unveiled the joint submarine project last March in a deal that will see Australia replace its diesel-powered submarines with nuclear-powered ones that have far greater stealth and range.
The plan involves Australia purchasing US nuclear-powered submarines, and then building a new model with US and British technology.
BAE Systems said that the future SSN-Aukus "will be the largest, most powerful and most advanced submarine" supplied to the Royal Navy. It predicts the investment will "cover development work until 2028", and the "recruitment of more than 5,000 people" at its Barrow-in-Furness site in northern England.
Despite things looking rosy for BAE, Berenberg's top pick in the sector is Frankfurt-listed Rheinmetall.
"Rheinmetall is the best way to gain exposure to the upturn in European defence budgets, in particular the re-stocking of military equipment and surging ammunition demand," Berenberg added.
BAE shares were 1.1% higher at 1,008.50 pence each in London on Monday morning. Berenberg lifted BAE to 'buy' from 'hold' on Monday. It has a 1,170p price target.
By Eric Cunha, Alliance News news editor
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