Who will benefit from Polish arms purchases?

In 2021, Poland will spend 2,2 percent on defense. GDP. from the PLN 52 billion budget of the Ministry of National Defense, of which PLN 15,8 billion is intended for the purchase of new weapons. In the budget for 2022, this amount is to increase to PLN 18,5 billion. Increasing spending on armaments means that manufacturers of combat equipment can be an attractive investment.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.

Military spending is on the rise - who will benefit?

The method of purchasing equipment by the Ministry of National Defense is sometimes criticized. However, what characterizes the actions of the current government are large projects for the purchase of modern military equipment, mainly from the USA. This is to be a response to the growing political threats in our part of Europe, but also to improve political relations with the USA.

In July, the government announced the purchase of 250 Abrams M1A2 tanks. The purchase carried out in 2022-2026 is to cost a total of about PLN 23,3 billion. It is to be financed by the Ministry of National Defense, but it is possible that it will also be financed through the issue of bonds. The purchase concerns the full package, i.e. the tanks themselves, infrastructure for them and crew training. The manufacturer and seller of the Abrams tanks is the company General Dynamics. The company is the third largest supplier of defense equipment in the US. The shares of this company from the beginning of the year increased by 35,82 percent, in September they recorded a decline by 3,2%. In the second quarter of this year, the company earned $ 737 million, or 18 percent. more than a year earlier. The P / E ratio is currently 17,26. The company allocates 40 percent. your profits to pay dividends. The right to quarterly dividend is determined on October 7th. It will be paid on November 12 at $ 1,19 per share.

In January 2020, Poland ordered 32 multi-role F-35A aircraft. This contract, worth PLN 20,7 billion, also covers equipment, service and pilot training. The deliveries of the aircraft will be carried out in the years 2024-2030. Provider is Lockheed Martin, the world's largest arms manufacturer. Since the beginning of the year, the company's shares have increased by a modest 0,92 percent., and in September they were discounted by 1,17 percent. P / E for equities is 13,3, with a profit for the second quarter of 2021 of 1,8 billion. dollars, by 12,5 percent. more than a year earlier.

In 2018, two Patriot missile batteries worth PLN 16 billion were also ordered. The first one will be delivered this or early next year by Raytheon Technologies. The company grossed $ 1,28 billion in the second quarter, compared with a loss of $ 3,76 billion a year earlier. Since the beginning of the year, Raytheon's shares have increased by 27,84%and in September by 2,21 percent. The P / E ratio is 60,5, which is significantly higher than in the case of the two previous companies.

Summation

The defense industry, unlike the aviation sector, has not been hard hit by the effects of the pandemic. The coming quarters should be stable for the sector, as the pandemic did not cause a reduction in defense budgets. Also in the USA, despite the withdrawal of troops from Afghanistan. Some countries may even increase their defense spending as a result of good economic conditions. Disruptions in the global supply chain, which may result in project delays and resulting contractual penalties, pose a greater risk to defense companies. The defense sector therefore remains an interesting candidate to be included in the investment portfolio.