London summit ‘turbocharges’ shares of European arms makers amid hopes for defence spending
Shares in European arms makers surged on Monday, boosted by the prospect of higher defence spending in the region, following Sunday’s London summit, where European leaders agreed they must spend more on defence.
JPMorgan analysts said the events of the last two weeks have “turbocharged” their thesis of a European rearmament cycle, with Europe seeking to gradually make more of its own military equipment and import less from the United States.
“There are 30 European countries in NATO, and we expect many of them will soon commit to much higher defence spending,” they said in a note.
Gains in defence stocks drove a broader gauge of aerospace and defence companies .SXPARO up more than 6% to a record high, which has more than doubled since the last three years.
Shares in Europe’s biggest defence company, BAE Systems BAES.L had risen around 15% by 0927 GMT.
Germany’s Hensoldt HAGG.DE, which provides sensor systems for the Eurofighter, jumped 22% to a record high. Leopard 2 tank maker Rheinmetall RHMG.DE rose 12%. Thyssenkrupp TKAG.DE and Renk R3NK.DE were up between 14% and 15%.
Italy’s Leonardo LDOF.MI jumped 11%, while Sweden’s Saab SAABb.ST rose around 10%.
France’s Thales TCFP.PA and Dassault Aviation AM.PA were up around 13% and 15%, respectively.
Britain on Sunday announced an order for 5,000 lightweight multirole missiles (LMM) for Ukraine, trebling production of the air defence missiles at the Belfast factory of Thales. Thales declined to make detailed comments on the order ahead of its annual results on Tuesday.
BofA Global Research analysts estimated that NATO members excluding the U.S. were expected to spend around $450 billion on defence in 2024, saying that if every country increased its spending to 3% of GDP, it would add $250 billion, a “significant step up in spend and outlook.”
They added in a note that European defence stocks still looked “cheap” despite the rally, with the sector currently trading at around 11 times its Enterprise Value/EBITDA ratio in 2027 compared to 13 times for U.S. peers.
