Aerospace and defence companies have enjoyed a barnstorming rise in the past couple of years, hardly surprising given that war, be it Russia’s invasion of Ukraine or the conflict between Israel and Hamas, has continued to dominate the headlines.
One of the main beneficiaries has been BAE Systems, shares of which have more than doubled in value since Russia invaded its neighbour in February 2022, hitting a peak of £13.69 last month.
Now, however, investors thought it timely to lock in their profits at Britain’s biggest defence company. Indeed, the builder of the nation’s nuclear submarine fleet and squadrons of fighter jets was swept up in a sell-off of aerospace and defence stocks after analysts said valuations in the sector potentially were getting a bit stretched.
“We would be cautious on European defence stock valuations as we approach 2025,” Victor Allard, an analyst at Goldman Sachs, said, adding that these valuations presented “more downside than upside risk”. Allard and his team also think that growth in European military budgets is likely to decelerate from next year onwards.
BAE was the biggest loser among London’s biggest companies, falling 60½p, or 4.5 per cent, to £12.77. Its peers Chemring and QinetiQ dropped 18p, or 5 per cent, to 342½p and by 13½p, or 3.8 per cent, to 349p, respectively, while Babcock International retreated 13p, or 2.5 per cent, to 500½p.
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And there was more: shares in Rolls-Royce, the maker of jet engines and the FTSE 100’s best-performing share of 2023, slid by 17p, or 3.9 per cent, to 412¼p , while Melrose Industries, the former industrial conglomerate-turned-aerospace specialist, shed 21½p, or 3.2 per cent, to 649½p. Elsewhere in Europe, Rheinmetall, the German group, and Leonardo, of Italy, each fell by more than 6.5 per cent.
Despite a commodities push providing a positive start to the session, the downward pressure from BAE and Rolls caused the FTSE 100 to lose 8.68 points, or 0.1 per cent, to 7,934.79. The more UK-focused FTSE 250 gave up 91.23 points, or 0.5 per cent, to 19,76336.
Investors were more confident snapping up commodity-focused stocks as metals prices were strengthened by hopes of a worldwide manufacturing rebound, itself a response to positive factory data from bigger economies.
This gave a lift to Antofagasta, up 54p, or 2.4 per cent, to £22.69; Anglo American, which rose 36½p, or 1.7 per cent, to £21.91½; and Glencore, which finished the session 6¼p, or 1.3 per cent, ahead at 473p.
However, Fresnillo took the top spot on the FTSE 100 risers’ board, jumping 22p, or 4 per cent, to 578p as traders sang Gold at the top of their voices after prices of the yellow metal hit a record high for an eighth consecutive session.
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One of the biggest movers in the mid-cap index was JTC, which rose by 15p, or 1.8 per cent, to a two-year high of 839p after the fund manager reported full-year results slightly ahead of what the market had been expecting thanks to new business wins.
Investors also moved into John Wood Group, the engineering consultancy, on advice from Investec as the bank praised the engineering consultancy’s cost-cutting plans, which they believe provide a pathway to higher margins and underlying profit growth. Its shares closed up 3¼p, or 2.4 per cent, at 134¼p.
For investors wanting to take a punt on the bustling beauty industry, they need look no further than Warpaint London, apparently. The Aim-listed cosmetics group said it had generated record sales of about £23.5 million in the first quarter, sending its shares up 52½p, or 14 per cent, to 427½p. Thanks to the strong start to the year, bosses expect Warpaint’s performance to be ahead of present market expectations.
It was a brutal day for Surface Transforms, however, which declined by 3½p, or 37.8 per cent, to finish at a record low of 5¾p. The company, which makes carbon brakes for some of the world’s biggest carmakers, said it had generated revenues of £3 million in the first quarter, lower than its own target, and warned that high levels of scrap had absorbed a “sizable amount of working capital and cash”.
Orchard Funding Group considers Aim exit
The “continued and escalating costs of listing” have prompted Orchard Funding Group to consider an exit from London’s junior stock market (Helen Cahill writes).
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The Aim-listed finance business warned that its share price was standing at a “material discount” to its net asset value of £17.75 million.
Orchard said it also was considering a share buyback to return capital to investors. Ravi Takhar, 59, its chief executive, said: “As a result of the continued and escalating costs of listing having a significant impact on our earnings, the poor trading of our stock, the lack of liquidity of the stock and the inability of the company to raise new capital, we believe a full review of the benefits of continuing to maintain our admission on Aim should be undertaken.”
Orchard’s profit before tax fell by 13.6 per cent to £1.08 million in the six months to January 31, although it said this would have increased by 18.7 per cent to £1.48 million had it not been for an external fraud that it said had prompted a possible loss of £398,000 and was “unlikely to occur in the future”.
Its shares closed up 33.8 per cent, or 5½p, at 21½p.
Wall Street report
Indices were mixed ahead of Wednesday’s inflation data and the earnings season that starts on Friday. The Dow Jones industrial average shed 9.13 points, or 0.02 per cent, to 38,883.67. The S&P 500 rose 7.52 points, or 0.1 per cent, to 5,209.91.
