Babcock and Rolls-Royce stocks rally after Healey appointment
Defence stocks including Rolls-Royce have stormed to new highs as investors added to bets that the new Chancellor John Healey would plough further cash into London-listed arms companies.
Defence supply giants Babcock and BAE Systems were among the biggest risers when markets opened on Tuesday, some 12 hours after former defence secretary Healey was appointed to head the Treasury under Andy Burnham.
Babcock shares surged by more than 6.5 per cent in the first half hour of trading while BAE Systems rose by 2.8 per cent. Rolls-Royce stocks edged up by 0.7 per cent to hit 1,369p.
Serco, which runs several facilities and provides services to the Ministry of Defence, rose by 1.7 per cent.
The jump in defence stocks reflects investors’ optimism about a more rapid increase in defence spending under Chancellor Healey, with British firms also set to be prioritised in procurement as part of an effort to “re-industrialise” the country.
Rolls-Royce’s gains
Last month, Healey resigned from Sir Keir Starmer’s government over a lack of funding for defence spending. He accused the Treasury of being “unable” to provide enough cash for the military as it refused to set a date on when the government would raise defence spending to three per cent of GDP.
Under the current Defence Investment Plan (Dip), spending will hit around 2.7 per cent of GDP by 2030. Healey has argued for spending to reach three per cent and for the UK to set a timeline on how to reach 3.5 per cent by 2035 per a Nato agreement.
Healey and Burnham have also said they would like to prioritise British firms in government procurement, drawing on a commitment made in Starmer’s Dip.
It could set domestically-listed companies up for sweeter years ahead as contracts pipelines look set to improve.
After Healey’s appointment, one industry source told City PM that bosses were rejoicing at the prospect of an uplift in defence spending.
They added Burnham made an “incredibly sensible” pick and suggested that Healey could explore procurement agreements under Canada’s Defence, Security and Resilience Bank, which was not backed by Starmer and former Chancellor Rachel Reeves.
Rolls-Royce has become a key provider for engines on aircraft, submarines and other power systems, with its technology to be used in the new Dreadnought submarine fleet under the government’s nuclear deterrence strategy.
Its Lift System engines are also used in F-35 jets and it also provides support for the Typhoon fleet. The company also has contracts to develop autonomous drones, which are set to be prioritised by the government.
Chris Beauchamp, chief market analyst at the investment platform IG, warned that Healey’s appointment may not deliver the gains that defence firms imagine.
“As Chancellor, he will have many competing demands, and won’t just be the MoD’s man in No 11.
“His experience made him an obvious candidate for the role, and he represents a middle way between [Ed] Miliband and [Shabana] Mahmood, but it will not be easy to find lots more cash for defence, especially when the new Prime Minister is so busy making broad spending commitments in other areas.”