Clément Inbona, Fund Manager, La Financière de l’Échiquier.
Forget the Magnificent Seven, that exclusive club of US mega-stocks linked, in particular, to the tech and AI sectors. The new stock market darlings are “Le(s) S.T.A.R.S” – Leonardo, Saab, Thales, Airbus, Rheinmetall and Safran. These six stocks are listed in the European Union and are major players in the defence and aerospace sector – an industry currently abuzz with excitement.
“At the beginning of a decade of strong growth”
were the words of the Thales CEO, which could have come from the lips of any other manager in the EU defence industry. Indeed, the ReArm Europe plan announced on 4 March by the European Commission aims to mobilise EUR 800 billion, “… for a safe and resilient Europe”, according to Ursula Van der Leyen. In response to an increasingly leaky NATO umbrella and the prevailing threat from Russia, the European Union has taken the measure of the situation.
However, many strategic challenges remain, in order to respond effectively to this strategic challenge.
Firstly, at budget level, loans linked to defence will be excluded from the 3% deficit straitjacket of Brussels. This is a major step forward.
Next, on the spending front, some countries, particularly France, are advocating for funds to be directed towards companies on the European continent as a priority, whereas others, such as Germany, are more hesitant.
The ability of the sector to absorb this excess demand also raises questions within a fragmented industry where up to now national interests have prevailed. The case of fighter jets is a good example. Five models co-exist on the European continent: the French Rafale, the British/German/Italian Eurofighter, the Swedish Gripen, and the dominant US F-16 and F-35 aircraft. The future combat air system (Système de Combat Aérien du Futur – SCAF) programme could chart some form of convergence on the continent.
Lastly, on the finance front, the shackles are bursting in swift succession. For a long time ostracised on moral grounds, with the sector’s lethal aspect outweighing the challenges of defence and persuasion, the dials now seem to be moving here as well. For example, in its report on ESG and financing for the defence industry, the French institutional investors’ association (Association française des investisseurs institutionnels – Af2i) indicated that ESG may be compatible with financing some parts of the defence industry, providing that certain operating conditions are met. More recently, a last-minute turnaround symbolises this (r)evolution: Euronext had been considering excluding Airbus, Thales and Safran from its CAC ESG index following a downgrade by an ESG rating agency of their ratings. But under pressure from the media and the political sector, the stocks will remain in the index.
Maybe some further alignment is necessary if “Le(s) S.T.A.R.S” are to continue to shine on the stock market?
