- In the wake of the Russia-Ukraine war, the UK government may soon increase its defence spending.
- As per industry expectations, UK defence spending could reach 3% of GDP, a big boost to the industry.
- Some mid-cap defence stocks like Ultra Electronics Holdings Plc, Qinetiq Group and Chemring Group can be focused beyond the bluechip stocks amid the expected surge in spending.
The UK government could soon decide to boost its defence spending to improve forces and provide additional support to Ukraine. Amid the rising tensions between Russia-Ukraine, many defence experts suggest that Britain should increase its defence spending to protect its borders from any potential threats.
The UK government’s defence expenditure is about 2.2% of GDP, which is above the 2% target set by NATO, a military alliance of European and North American countries. In 2020, the government allocated an additional £24 billion to the defence ministry to be spent over the four years.
Now, it is anticipated that the UK defence spending could reach 3% of GDP, which will be a big boost to the defence industry. The additional funds will be used to buy fighter jets and weapons. The decision to raise the defence budget might be made during the spring statement on 23 March 2022.
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The boost in defence spending might be positive for the companies operating in the related segment as they will get new orders from the government. Let us look at 3 FTSE 250 listed stocks that could be in focus:
Ultra Electronics Holdings Plc (LON: ULE)
FTSE250 listed company provides engineering solutions to defence and security markets. It operates through three key segments: Detection & Control, Maritime, and Communications and has operations in the UK and other countries.
Ultra Electronics has a major presence in the defence segment. In January 2022, the company announced a new partnership with Mahindra Defence Systems Limited and was awarded a new contract from the Indian Navy worth £60 million. Also, the company won another £65 million contract from the UK defence in November 2021.
Ultra Electronics Holdings Plc’s last close was at GBX 3,186 on 04 March 2022, with a market cap of £2,275 million.
Qinetiq Group Plc (LON: QQ.)
The company provides various engineering products in the defence and security markets in the UK and other countries.
For the third quarter ended 31 December 2021, Qinetiq reported higher order intake, and its total order book now stands at over £900 million. The operating profits and revenue were in line with expectations during the period.
Qinetiq Group Plc’s last close was at GBX 304.60 on 04 March 2022, with a market cap of £1,762 million.
Chemring Group Plc (LON: CHG)
The UK-based company supplies sensors and other related products to aerospace and defence industries in the UK and other countries.
Chemring Group’s business reported a higher order intake for the year ended 31 October 2021. Its total order book was £500.8 million during the period, while its revenue was £393.3 million. Following the good performance throughout the year, the company declared a 23% rise in its dividend payout to 4.8p per share.
Chemring Group Plc’s last close was at GBX 329 on 04 March 2022, with a market cap of £ 931.5 million.
Note: The above content constitutes a very preliminary observation or view based on industry trends and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.