The defence sector isn’t just about BAE Systems, plenty of FTSE 250 weapons makers are powering ahead too.
Many investors, me included, now have outsized exposure to BAE Systems, with its shares soaring 50% in the last year, and 325% over five. It’s a mighty £50bn business but looks expensive with a price-to-earnings (P/E) ratio pushing 30. Is there better value elsewhere?
Goodwin is a good ‘un
Family run engineering group Goodwin (LSE: GDWN) has a history stretching back to 1883 and has built a global business around precision engineering for the energy and industrial sectors. Today, the FTSE 250-listed group’s defence arm is leading the charge.
I was all ready to buy Goodwin a year ago, then got distracted. Now I feel it’s too late with the shares up a painful 290% over 12 months (painful for me, that is). Over five years they’re up almost 900%, lifting its market cap to £2bn. Investors who think BAE Systems is too expensive will tremble at Goodwin’s P/E though, which is nudging 82.
Expectations are just too high. In December, first-half trading profit almost doubled to £37.2m, but the shares still retreated. Some might consider Goodwin with a long-term view, but it’s too expensive for me.
Chemring is on fire too
Defence-tech specialist Chemring Group (LSE: CHG) is a sluggard by comparison, it shares are up 45% over one year and ‘only’ 85% over five.
They’ve stalled over the last six months though, despite it reporting a 31% increase in pre-tax earnings to £67.7m in December. Chemring’s order book climbed by a fifth to a record £1.34bn. That provides 76% coverage for 2026 earnings.
Lately, the shares have trailed, as mentioned. Its Sensors & Information business has been hit by delays in UK government spending and contract timings, while costs have been higher than expected on certain projects, notably its Norwegian plant.
Chemring is winning high-margin business in intelligence work, via its Roke division, and that could drive growth in future. With a P/E of 26.5 and market cap of just £1.4bn, I think it’s worth considering for investors looking to diversify away from big gun BAE Systems.
Qinetiq almost looks a bargain
Finally, there’s Qinetiq Group (LSE: QQ), which may tempt bargain seekers like me. It shares are up a modest 28% over the year, and 75% over five. The P/E is easily the lowest here at 19.1. The market cap is £2.7bn.
Last month, Qinetiq forecast organic annual revenue growth of 3%, which is modest for this sector, citing near-term uncertainty over client spending. It nonetheless boasts an order backlog of around £5bn, and a qualified pipeline of £11bn, which says gives it “long-term visibility”. Cash flow is strong too.
Qinetiq has posted some big wins, including mission critical engineering services for Typhoon jets, while its DragonFire laser programme will deliver next‑generation counter‑drone capabilities for the Royal Navy. With laser shots costing as little as £10, this could be a huge growth area given the changing nature of warfare.
Qinetiq strikes me most as worth a further look. But I’d say BAE Systems and Chemring are also worth considering today with a long-term view as the world sadly gets more warlike.
