Investors are looking beyond the traditional defense values that have emerged as stars in the European markettowards cheaper industrial companies prepared for benefit from the increase in military spending In the region.
The actions of Thyssenkrupp, whose operations range from the manufacture of steel and car parts to material trade and the construction of fertilizer plants, rose 20% on Monday, driven by an expected increase in defense budgets that could boost their division of ships of War TKMS, which will be split this year.
The conglomerate has lost 40% of its value in five years, affected by a long and painful restructuring of its extensive operations.
However, its defense assets, which include submarines, frigates and sensor technology and mines detection, are now considered a potential catalyst for growth.
Bofa Global Research described TKMS As a “hidden” defense action, valuing it in half of Thyssenkrupp market capitalization. American investment bank analysts pointed out that defense companies are now among the most attractive variable income stories in Europe. “We see great value,” they wrote about TKMS.
Recognition by the undervalued defense asset market could lead to an increase in shares prices, driven by higher valuation multiples and gain growth linked to the increase in defense spending.
The analysts also cited the manufacturer of bus and trucks Iveco Group and the Naval Constructor Fincantieri as beneficiaries if the defense rally is extended beyond pure games, just when some questions about the sustainability of the Europe Rally arise.
However, investors will need active selection skills to take advantage of this trend, since these opportunities may be beyond the main reference rates of actions that follow passive strategies.
Thyssenkrupp is a medium capitalization action that quotes in the MDAX index, after falling from the main Dax index in 2019, after a series of gain warnings and the fall in the price of the shares.
Alberto Conca, Investment Director of the Swiss asset manager Zest+LFG, believes that many industrial companies, including those that do not participate directly in the defense, could indirectly benefit from the military boom. “This makes a lot of sense,” he said.
Iveco’s shares have shot since he announced at the beginning of the month that he could split his IDV defense division this year. IDV registered an operating profit margin of 10% last year, the only result of two digits in the company’s industrial businesses.
After having lagged in the broader aerospace and defense index since Russia invaded Ukraine three years ago, both Thyssenkrupp and Iveco are quickly catching up. This year they are surpassing others, with an increase of 53% and 68% respectively.
World Defense companies contribute their planned benefits to 25.8 times, compared to 18 times three years ago, according to LSEG DataStream data. Iveco and Thyssenkrupp quote both around 8 times with the same assessment metric.
By Danilo Masoni and Christoph Steitz, from Reuters Agency
Source: Ambito
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