With the war in Ukraine on the borders of Europe, the world scenario has changed, increasing the need for security. The effects are reflected in the financial statements of defense multinationals considered and in their listings on the Stock Exchange: in 2022 investments grew three times faster than revenues and equities achieved the highest returns. This is what emerges from a survey conducted by theMediobanca Studies Area on the annual accounts of defense multinationals which show in 2022 the aggregate turnover of the thirty world groups mainly specializing in defense was 432 billion euros, of which 316 billion are estimated to be generated exclusively by the same sector (+ 4% on 2021 and +10,5% on 2019).
The sector is dominated by US players with a 74% share of the total, followed by European groups with 22% and Asian ones with 4%. A further increase in revenues of +2023% over 6 is expected in 2022, due to the increase in national budgets in response to growing geopolitical tensions.
The defense giants who have earned the most
- Use, with their 15 big players, also win the lead in terms of numbers ahead of France, separated by three clubs; two groups each for Germany, Great Britain, India and Italy that, with Fincantieri e Leonardo, accounts for 21% of European turnover and 4,7% of world turnover.
In his report, Mediobanca notes that the top five places for estimated revenues generated by the Defense sector are occupied exclusively by US groups: Lockheed Martin (57,5 billion euros), Raytheon Technologies (37,1 billion), Boeing (35,6 billion), Northrop Grumman (29,5 billion) e General Dynamics (25,9 billion). It is placed in eighth position Leonardo (12,2 billion) and at the twenty-third Fincantieri (2,4 billion).
The increase in revenues sees the Turkish one excelling Aselsan (+75% on 2021), ahead of the Germans Hensoldt (+ 15,8%) and Rheinmetall (+13,3%) and to the Americans HII- Huntington Ingalls Industries (+ 12,1%) and Booz Allen Hamilton (+11,8%), all with double-digit growth. Both Italian groups stand out for an above-average increase: Fincantieri with +8,1% and Leonardo with +4,1%.
La profitability instead it appears to be declining: the average EBIT margin falls from 8% in 2019 to 7,3% in 2022. Three state-controlled companies report the most satisfactory margins: the Turkish Aselsan (25,2%) and the Indian Hindustan Aeronautics (24,7%) and Bharat Electronics (20,6%).
Up by double digits investments which overall are close to 12 billion euros (+13,2% on 2021). The podium for investment intensity sees the American BWX Technologies in first position (8,9%), ahead of the Turkish Aselsan (6,7%) and the German Hensoldt (5,6%) and Rheinmetall (5,4%). The Italian groups are well positioned, confirming their industrial strength: sixth place for Fincantieri (4%) and twelfth for Leonardo (3,3%).
While the distribution of dividends increased by 5,2% on 2021, with 81% of the total absorbed by the shareholders of the US groups. The 30 defense multinationals employed over 1,3 million people in 2022 (+0,4% on 2019), of which 69% belong to the stars and stripes groups.
World defense spending
La global expense for defense exceeded 2 trillion dollars for the first time in 2021 (+0,7% on 2020 and +12% on 2012, in real terms), reaching an all-time high of 2.113 billion dollars (2,2% of global GDP), equal to 5,8 billion a day. 37,9% comes from the United States (801 billion), followed by China with 13,9% (293 billion), India (3,6%), the United Kingdom (3,2%) and Russia (3,1. 1,5%); Italy is eleventh with 32% of the world total (88 billion, equal to XNUMX million a day).
The ranking changes if we consider the impact on GDP: first places for the countries of the Middle East and North Africa, with Russia in 11th position (4,1%), the United States in 15th (3,5%), Ukraine in 19th (3,2%), China in 63rd (1,7%) and Italy in 76th (1,5%, it was 1,4% in 2012 and 2,1% in 1988). As requested by NATO in 2014, Italy is gradually increasing its defense spending with the goal of reaching the 2% of GDP threshold by 2028.
And i citizens how much they spend for the defense of your country? At the top are Qatar, Israel, the United States and Kuwait with more than 2 dollars per capita in 2021; Italy's 530 per person (equal to 1,5 per day) represent about double the world average (268) and 17% more than Russia. The share of public expenditure dedicated to defense is highest in Belarus, Qatar, Oman and Saudi Arabia with over 20%, while Italy is in the lower part of the ranking with 2,6%, lower than the world average of 6,2 .10,8% which is instead overtaken by Russia (8,3%), United States (7,8%) and Ukraine (XNUMX%).
Capitalization on the Stock Exchange: the Italians among the least valued
La capitalization of defense multinationals stands at 736 billion euros at the end of 2022, equal to 0,8% of the total value of world stock exchanges (0,5% at the end of 2021). On average, the capitalization is four times higher than the equity, with the between less valued from the Stock Exchange: Fincantieri shares 1,5 times the equity and Leonardo 0,6 times. At the end of March 2023, the aggregate capitalization was 721 billion euros, of which 80% was held by the stars and stripes groups, with the stock market podium occupied by the three US Raytheon Technologies (131,9 billion), Boeing (117,2, 110,7 billion) and Lockheed Martin (65 billion). All the other companies have a market capitalization of less than XNUMX billion euros.
In 2022 the share yield of Defense players (dividends included) is equal to +34,6%, well above the -11,0% marked by the world stock index. In the first quarter of 2023, the aggregate value marks +0,2%, with the best performances recorded by the Swedish Saab (+51,7%) and the German Hensoldt (+50,2%) and Rheinmetall (+46,3%); fourth best performance for Leonardo (+34,2%) and eighth for Fincantieri (+11,6%).
The Stock Exchange and the Investors therefore they seem to have appreciated the renewed value of security. This happened despite the fact that defense companies suffer from a penalizing specialization in terms of ESG. However, the changed geopolitical context has reopened the debate on the reconsideration of the compatibility between sustainability and investment in the capital of Defense companies.
