Investing in Aerospace, and the disruptive challenge

The UK Aerospace Industry is worth around £40 billion, it’s highly export intensive, it could be adversely affected by Brexit, but there are many reasons to believe that parts of the sector could boom.

Article updated: 19 July 2018 8:00am Author: Michael Baxter

What it is

Aerospace is aviation, which you can subdivide into military, commercial and general, missiles, rockets, and space aircrafts.

I think you can now add to that: drones and very soon, flying pigs, err, sorry, meant flying cars.

The UK industry

In 2017, the UK aerospace industry was worth around £40 billion, around 90 per cent of revenue comes from exports, and the last five years have seen growth of around 40 per cent. Some of the key players include...

BAE Systems

Market cap £21 billion, shares up around eight per cent in the last 12 months and by a half over the last five years. Dividends are around 3.4 per cent (21p). The company delivers and supports advanced defence and aerospace systems.

Cobham Plc

Shares down slightly over the last year, halved over the last five. Market cap around £3 billion. Hasn't paid dividends recently. Cobham designs and makes specialised systems and components used in the search & rescue, civil & defence aviation, marine, aerospace, homeland security and communication markets.

Meggitt plc

Shares up around 12 per cent over the last year, flat over the last five years, market cap around £4.4 billion, dividends around 3.25 per cent (15p). It designs and supplies systems and components for the global aerospace, defence and electronics industries.

Qinetiq

Shares up around 10% over the last year, by 50% over last five years, market cap £1.5 billion, dividends around 2.4 per cent (6.3p). One of the world's leading defence technology & security companies, manufacturing and supplying products such as sensors for weapons, advanced robotic systems and advanced security for computer systems.

Rolls-Royce Holdings

Shares up around 5% over the last year, down by almost 20% over the last five, market cap is around £18 billion, dividends just over 1% (11.7p). They manufacture aero, marine & industrial gas turbines for civil & military aircraft. They design, construct and install power generation, transmission and distribution systems, and equipment for the marine propulsion, oil and gas pumping and defence markets.

Senior plc

Shares up around a quarter over the last 12 months, and 17% in the last five years, market cap £1.3 billion, dividends just over 2% (around 7p). An international manufacturing group, providing engineered products for demanding operating environments. Offering products for structures, fluid conveyance, and gas turbine engines in the commercial aerospace & defence markets.

Ultra Electronics

Shares down 17 per cent over the last year, down six per cent over the last five years. Market cap is £1.2 billion, dividends around three per cent (50p). It specialises in the design and manufacture of electronic and electromechanical products, notably for the defence industry such as aircraft, ships and armoured vehicles.

Investors may also want to consider non-UK businesses such as Airbus, Boeing and for a punt on disruptive technology: SpaceX.

Disruption

Disruption may occur in two quite different ways. Right now, there is a disruptive presence in the White House, and in any case the world feels even more uncertain and precariously balanced than usual.

Given the recent Trump rhetoric with NATO, and the confusing stance he has taken with Mr Putin, EU countries may well conclude that they simply have to spend more money on defence, not so much because the US President asked them to, but because the US is fast looking like an unreliable ally and Europe may conclude it needs to be more independent.

For global stability this may not be good, but for investing in defence and defence related aerospace this means big bucks, or should one say, big euros?

Quite different from that is disruptive technology.

Don’t confuse disruptive technology with a disruptive US President. One is like a naughty boy sitting at the back of the class making it difficult for the rest of the class to concentrate, the other is more akin to a new teaching approach that forces kids to reconsider their understanding of long held, maybe complacent, views.

Two recent developments seem interesting.

Rolls Royce has recently announced that it has developed a propulsion system for a flying taxi. Don’t take my jibe above about flying pigs too seriously, flying cars are emerging, their disruptive potential is huge: it won’t be long before you see them over Battersea Power Station. Rolls Royce is in the market, as is Airbus and Uber. Look upwards on this opportunity.

Meanwhile, I note that Airbus has teamed up with International SOS to develop a drone cargo medical delivery system. The drone industry will be massively disruptive. Investors should watch this area, spectacular opportunities, as well as dangers, will emerge.


 

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.