QinetiQ shares rise on defence spending hopes, Berenberg raises target price
Shares in security and defence contractor QinetiQ were rising strongly on Monday on the back of news of increases to defence spending by the UK government, which broker Berenberg said underpins the outlook for the business.
In an interview with The Times published this weekend, defence secretary John Healey said there as "no doubt" that UK defence spending would increase to the equivalent of 3% of GDP by 2034.
That follows comments in February from prime minister Keir Starmer that defence spending would rise to 2.5% by April 2027 with an "ambition" to hit 3% by 2034.
The Office for Budget Responsibility has said that meeting the 3% target "would cost an additional £17.3bn in 2029-30".
"This is most positive for QinetiQ in our aerospace and defence coverage as it derives the highest share of revenue - 57% - from the UK Ministry of Defence," Berenberg said in a research note.
"This positive UK backdrop continues to underpin the outlook, and the US outlook is de-risked given the restructuring and the company's decision to focus on four business areas."
Berenberg added that the stock, which it rates a 'buy', still trades at a 25% discount to others in the UK defence sector on a price-to-earnings basis. The broker set a new target price of 570p for the shares, up from 500p previously.
The stock was up 5.2% at 522.79p by 1304 BST.