European defence companies cash in as military budgets increase

European defence companies such as Thales and Rheinmetall have reported soaring orders as military budgets increase. Here’s a look at some of the firms set to profit from the geopolitical uncertainty.

The biggest European defence and aerospace companies are experiencing record order and cash flow levels, as new weapon orders from governments soar.
These include German firm Rheinmetall, British BAE Systems, France’s Thales and Sweden’s Saab. 
The uptick in orders can primarily be explained by escalating geopolitical uncertainties, given the ongoing Russia-Ukraine war and the Israel-Hamas conflict.
As a result, government military budgets have been increasing, which has meant more orders for defence contractors.
For 2024, the European Defence Agency has set aside a general budget of over €48,000m.
With this extra cash, companies are diverting more funds towards share buybacks and dividends, and forecasters expect more mergers and acquisitions on the horizon.
French electrical systems and defence company Thales recently reported a 26% jump in order intake levels for the first half of the year, amounting to €10.8bn. This took the company’s order book to a new record high, at €47bn. 
Earnings before interest and taxes (EBIT) rose 10.4% to €1,096m for the first half of 2024, while sales also soared 8.9%, coming to €9.5bn.
Earlier in May this year, German arms manufacturer Rheinmetall also announced that a NATO customer had placed a large order for several tens of thousands of artillery shells.
The order, to be delivered between this year and 2028, also includes several hundred of thousands of propellant charge modules – used in a number of weapons.
In the second quarter of the year, the company’s booked orders came up to nearly €300m.
The company has mainly recorded higher orders because of several armed forces replacing their ammunition stocks as the Russia-Ukraine war continues. 
British aerospace and defence company BAE Systems is yet another firm that is profiting from increased orders, with the company recently raising its sales guidance while reporting half-year earnings. 
Orders rose by £1.6bn (€1.89bn) during first half of the year, rising to a total of £59.6bn (€70.34bn) as of 30 June.
BAE Systems now estimates sales growth to be between 12% to 14% for the full year of 2024, up from the previously communicated guidance of 10% to 12%.
This follows ongoing robust performance across all its divisions.
BAE systems also raised its underlying earnings before interest and taxes (EBIT) guidance to a range between 12% to 14%, up from 11% to 13%.
The company recorded a sales growth of 13% for the first half of the year, coming up to around £13.4m (€15.82bn). 
Charles Woodburn, chief executive officer of BAE Systems, said in the company’s half year earnings report: “Our order intake shows that demand for our products and services remains high and we are well-positioned for sustained growth in the coming years. 
“We will keep investing in new technologies, facilities and our people so that we can deliver on our record order backlog and help our government customers stay ahead in an uncertain world.” 
Swedish defence company Saab also recently announced that it had received a naval combat boat order for 10 boats, from the Swedish Defence Material Administration.
The order is worth 400m Swedish krona or SEK (€35.04m), with the contract due to begin this year.
Deliveries will be made continuously over the coming years.
The purchase symbolises Sweden’s reinforced efforts to strengthen its naval defences, especially given the uncertain geopolitical climate in Europe.
Micael Johansson, president and CEO of Saab, said in the company’s second quarter earnings press release: “In the quarter, Saab recorded a strong order intake of SEK 40bn (€3.51bn), the second highest quarter in the company’s history. Our portfolio is uniquely positioned and we are strengthening our market presence. 
“We are also continuing our uplift in investments for additional capacity and are fully focused on securing competences and increasing our workforce.”
The company also saw sales surge 22% in the second quarter of the year, boosted by ongoing growth across all divisions. Earnings before interest and taxes also rose 25%. 
Other major US defence companies such as Lockheed Martin, Northrop Grumman, General Dynamics and RTX are also expected to gain from this increase in government orders.