Defence sector on the rise in Europe as US ammunition supplies fall; Leonardo surges

(Il Sole 24 Ore Radiocor) – Defence shares are flying high in Milan and across Europe. On the Milan Stock Exchange, Leonardo and Avio and Fincantieri in a FTSE MIB is weak. The trend is even more pronounced in Europe, where Thales in Paris and Rheinmetall in Frankfurt are leading the way.

The sector is being driven by the persistence of geopolitical tensions and, above all, the emergence of new indications of the need to replenish Western arsenals. This is supported by the Pentagon Inspector General’s report on the war with Iran. Between 28 February and 30 June, Operation Epic Fury cost the United States approximately 33.4 billion dollars, of which 22.3 billion was spent on ammunition. ‘Spending on ammunition during Operation Epic Fury has led to a shortfall in strategic stocks and highlighted bottlenecks within the ammunition supply industry,’ the document admits. The Pentagon is therefore working to speed up procurement and production times and replenish stocks: a situation that bolsters the outlook for demand in the defence industry. The incident in Lithuania, where two Italian Eurofighters engaged in NATO air defence shot down a drone that had penetrated the country’s airspace, has also helped to refocus attention on European security. The incident keeps the spotlight on air defence systems and the Eurofighter, a programme in which Leonardo plays a leading industrial role.

Furthermore, Banca Akros – which maintains a ‘Neutral’ rating on Leonardo with a target price of 63 euros – describes Thales Alenia Space’s new contract in Nigeria as ‘positive news for Leonardo’s space business’, as it “adds a new institutional contract for a telecoms satellite and bolsters the visibility of the order book”, whilst noting that it is “probably not large enough to significantly alter the forecasts for Leonardo”.

On Avio, attention is also being drawn to the success of the VV30 mission with Vega C, which placed the Copernicus programme’s Sentinel-3C and ESA’s Flex satellites into orbit. Intermonte emphasises that, ‘although the launch has no immediate economic impact’, the success ‘strengthens Avio’s competitive position in the European market for light-lift launchers’ and helps to boost the confidence of European institutions in the group’s ability to ensure autonomous access to space.

For Banca Akros, too – given that the flight that has just concluded was the second consecutive one managed by Avio as Launch Service Operator without any problems – the company is establishing itself as ‘an increasingly reliable partner for space launches’.