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Mining is not the only industry sector that is suffering amid the turbulence of the current geopolitical landscape, especially following the start of the Ukraine conflict and ongoing trade tensions between the US and China. Of the 276 FTSE 350 companies in our Market Tracker database for the 2022 AGM season, 184 of them (66.7%) specifically addressed the ongoing impact of geopolitical uncertainty on their business operations in their annual reports.

However, one company that has done particularly well over the past year is BAE Systems plc (BAE Systems), which has thrived amid the recent market volatility. The defence company has seen its shoot up 65.8% since the beginning of the year as of 13 October 2022, with its steepest rise directly following Russian military vehicles crossing the Ukrainian border back in late February 2022. Indeed, demand for arms spending has grown in tandem with the increasing instability of the international environment amid fears of a new Cold War. This is reflected in the BAE System’s 2021 , which treats current geopolitical trends more of an opportunity than a risk:

‘Our business continues to respond to geopolitical and technology trends that will influence and shape our customers’ defence and security requirements now and in the future. Our excellence in complex engineering, developing cutting-edge technology and seeking innovative solutions enables us to respond to our customers’ requirements for greater agility, global reach, and advanced technology products and services.’

However, its share price has fallen recently due to rumours that the proposed defence spending increase may become a political casualty following the new Chancellor’s spending review.

The success of other FTSE 350 aerospace & defence companies has been decidedly mixed. 

*From 1 January 2022 to 13 October 2022

Both Ultra Electronics Holdings plc (Ultra Electronics) and Meggitt plc (Meggitt) were officially acquired and had their share cancelled in late 2022 after initial offers during 2021. For Meggitt, this was after a long process following the intervention of the government on the grounds of competition and national security concerns (for more information, see: UK government clears Parker-Hannifin to takeover Meggitt).

On the other hand, the slow decline in Rolls-Royce Holdings plc’s since the start of the coronavirus (COVID-19) pandemic has continued unabated, whereas Babcock International Group plc (Babcock)’s is currently in a trough of its extreme volatility during 2022. According to the defence company’s recently published :

‘The market backdrop remains dynamic. Ongoing geopolitical uncertainty is leading to increased national defence requirements and potentially more opportunities, while macro factors such as inflation and supply chain stress increase delivery challenges.

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Overall group revenue and profit in the first five months of FY23 was in line with expectations. Organic revenue growth is largely offsetting the impact of disposals made in the prior year. Operating profit is being driven by our focus on execution and the efficiencies we are realising from our new operating model.

As previously guided, we anticipate a net cash outflow in the first half of FY23, reflecting the timing of pension deficit payments, with a return to positive free cash flow in the second half. Overall, our expectations of trading for the full year are unchanged.’

However, the market did not respond positively to such an announcement, sending Babcock’s share price to the lowest it has yet been during 2022.

If Ultra Electronics and Meggitt are excluded, then the aerospace and defence industry sector has averaged share price growth of 2.7% so far during 2022, far better than many other sectors during the ongoing market instability and cost-of-living crisis.

Market Tracker will continue to examine the effects of the current geopolitical uncertainty on FTSE 350 companies as they develop.