Defensive measures

By THIS IS MONEY
Updated:

 

WHAT effect has September's terrorist attack on America had on defence industry companies and their shares? DE.

Adrian Cannon of Barclays Stockbrokers says: The effects of the attacks were already being priced into stocks the day it happened. For instance, BAE Systems, the UK's leading defence stock, was the only stock in the FTSE 100 that was up on the day of the attack.

When the US markets resumed trading the main defence stocks were up around 20%, driven by the expectation of reprisal attacks, and thus the need to replenish supplies of missiles etc from these companies, plus the expected change in sentiment towards the

industry in the US Congress where doubts had been expressed about expanding defence spending.

After the attacks, Congress approved increased defence spending and projects including the Joint Strike Fighter, a programme which will cost $200bn-plus over the next 30 years. This alone will generate strong revenues for the industry in excess of this length of time as maintenance revenues for the fighters will continue for up to 20 years after delivery.

Most defence sector stocks have continued to rally following the attacks as the spending plans and attacks in Afghanistan raise the profile of the sector.

If, as expected, the conflict is protracted, scope for longer term equipment use and replenishment is increased which is likely to help the firms like Cruise missile maker Raytheon.

The sector has done very well since 11 September and although we may see some profit-taking, the long-term future looks brighter than it has done for some time.

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