71 Reasons To Buy BAE Systems plc And Rolls-Royce Holding PLC

Royston Wild explains why revenues at BAE Systems plc (LON: BA) and Rolls-Royce Holding PLC (LON: RR) are set to explode.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The importance of emerging markets to the global defence sector was underlined again this week when the Stockholm International Peace Research Institute (SIPRI) released its latest arms export report. This showed sales to Gulf Cooperation Council (GCC) countries — comprising Saudi Arabia, Kuwait, Bahrain, Oman, Qatar and the United Arab Emirates — surge 71% between 2005-2009 and 2010-2014.

Mainly with arms from the USA and Europe, the GCC states have rapidly expanded and modernized their militaries,’ SIPRI senior researcher Pieter Wezeman commented. And he added that “the GCC states, along with Egypt, Iraq, Israel and Turkey in the wider Middle East, are scheduled to receive further large orders of major arms in the coming years.”

BAE Systems Poised To Bounce

The report revealed that the volume of global international defence sales during 2010-2014 rose 16% from the prior period. And for BAE Systems (LSE: BA) in particular, news that India and Saudi Arabia were the largest and second-largest importers during the past four years will come as excellent news — the company has long been a critical hardware provider to the Middle East nation for donkey’s years, and established a BAE Systems India unit more recently.

BAE Systems has seen orders from non-UK and US customers flood in during recent years, and the business said that it expects these sales this year to rise 10% from 2014 levels. In particular, it cited the need for increased levels of support for the Salam Typhoon contract from Saudi Arabia as a major top-line driver in the coming year — the company delivered another 11 of the aircraft last year.

Indeed, BAE Systems expects the Emirate state to remain a major customer for some time to come, and in June announced a major reorganisation of its operations in the country. This included merging the holdings of the group with that of Riyadh Wings to boost its effectiveness in the fields of training, electronics and IT systems engineering, with BAE Systems holding a 51% stake in the new entity.

Rolls-Royce Primed For Lift-Off

Of course the prospect of surging demand from new territories — combined with the prospect of growing spend from the US and UK on the back of improving economic conditions — also bodes well for diversified engineer Rolls-Royce (LSE: RR).

The business provides aeroplane engines and aftermarket services to the world’s militaries, and derives more than a fifth of all profits from its Defence division. But Rolls-Royce is also a major military component provider in other areas, and its Marine arm built the engines, propellers, rudders, and steering equipment for the HMS Queen Elizabeth, the Royal Navy’s latest aircraft carrier.

As the economic might of emerging markets stomps higher in coming years, and the number and scale of conflicts raging across the globe demands an increase in global arms spend, I believe that BAE Systems and Rolls-Royce are in prime position to enjoy stunning revenues growth.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Dividend Shares

2 infrastructure dividend shares with yields of 7% or higher

Jon Smith outlines two dividend shares from a sector that boasts high yields at the moment -- but there are…

Read more »

Investing Articles

2 FTSE 100 growth shares that could shine in 2025

Paul Summers picks out two FTSE 100 growth shares that, despite performing very differently in 2024, he thinks could end…

Read more »

Investing Articles

My top 2 stock market predictions for 2025

This writer didn’t receive a crystal ball for Christmas, but he still has a couple of stock market predictions for…

Read more »

Investing Articles

3 companies that could emulate Nvidia stock’s success in 2025

Nvidia stock has generated market topping growth over the past two years. But investors need to be asking themselves, who…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Here’s my plan for maximising the returns from my Stocks and Shares ISA in 2025

After a good 2024, Stephen Wright has two key ideas he wants to implement in his Stocks and Shares ISA…

Read more »

Investing Articles

3 key FTSE 100 stock updates to watch for in January

My 2025 investing focus is on key FTSE 100 stocks in key sectors, and we won't have very long to…

Read more »

Investing Articles

Why the Diageo share price fell 10% in 2024

The Diageo share price fell 10% last year. But Stephen Wright thinks the stock market's being too pessimistic about a…

Read more »

White female supervisor working at an oil rig
Investing Articles

Why the BP share price fell 16% in 2024

Oil prices have been falling since April causing BP shares to do the same. But Stephen Wright thinks there’s much…

Read more »