MARKET REPORT: Investors hail £16.5bn defence spending pledge

Boris Johnson’s drive to ‘end the era of retreat’ and bolster Britain’s defence spending was music to traders’ ears. 

Shares in military contractors advanced after the Prime Minister twisted Chancellor Rishi Sunak’s arm and netted an extra £16.5 billion of funding that will be paid out over the next four years. 

The UK’s biggest defence company, BAE Systems, was changing hands at 507.8p, a rise of 1.7 per cent, or 8.7p, on the back of the announcement, which Johnson said will protect hundreds of thousands of jobs and create 40,000 roles. 

A tranche of the money will be spent on Tempest, the bumper programme BAE is working on to design and build a sixth-generation fighter jet. In another piece of good news, BAE also bagged a £58 million deal with the US navy. 

Outsourcers including Capita, which helps with British Army recruitment, and Serco, which maintains RAF jet fighters, were some of the other big winners. Capita’s stock rose 7 per cent, or 2.84p, to 43.54p, while Serco closed up 2.6 per cent, or 3p, to 117.7p. 

But Babcock International undid early gains to close down 1.8 per cent, or 5.8p, to 311.7p. Another major contractor, Mitie Group, had a trickier day after reporting it had a difficult first half. 

Mitie shares slumped 6.6 per cent, or 2.75p, to 38.65p, after it revealed profits nosedived by 85 per cent to £2.1 million during the six months to September, which covered virtually all of the first nationwide lockdown. 

Boss Phil Bentley said this had been better than expected and that its deep cleaning services helped it win customers including Marks & Spencer (down 1.1 per cent, or 1.45p, to 130.75p), Royal London and Morrisons. 

Speaking of Morrisons, the supermarket was on the up (rising 2.9 per cent, or 5.25p, to 186.2p) after Goldman Sachs upgraded its stock from ‘sell’ to ‘buy’. Analysts said they thought the grocer would be the best placed to benefit from the shift to online sales over the next couple of years. 

Halma was also on a winning streak, up 3.1 per cent, or 73p, to 2423p, as the smoke detector and automatic door sensor maker raised its first-half dividend by 5 per cent to 6.87p per share. Despite these rises, it was a subdued day on the wider market. 

The FTSE 100 fell 0.8 per cent, or 50.89 points, to 6334.35, while the midcap FTSE 250 fell 1 per cent, or 192.42 points, to 19,507.45. 

The boost provided by Covid vaccine announcements well and truly fizzled out, with Joshua Mahony, senior market analyst at IG, saying any optimism is being cancelled out by ongoing coronavirus anxiety – with a case in point being higher US jobless claims ‘highlighting the economic volatility that is likely to pick up towards the end of the year’. 

Trading platform CMC Markets’ first-half figures revealed how much of a boon the stock market turbulence triggered by Covid has been for its finances. Profits rocketed by 340 per cent from £30 million to £141 million in the six months to September, as amateur traders flocked en masse to take advantage of rollercoaster falls and rallies. And it has more than tripled its dividend to 9.2p per share. 

But shares in the FTSE 250-listed group fell by 0.8 per cent, or 3p, to 392p – indicating the market has already priced in the huge gains. 

London landlord Capital & Counties fell out of favour with investors – falling 3.6 per cent, or 5.2p, to 140p – after it launched a £250 million bond, which can be exchanged for shares in Shaftesbury. Capco owns 25.2 per cent of West End landlord Shaftesbury. FTSE 250-listed Capco said it would use the cash from the bonds to cut debt.