3 Defence Stocks With Profit Margins And Funding Risk In Focus

Simply Wall St.06-23

Defence stocks are back in focus after Babcock International reported a 19% fall in underlying operating profits and a £140m loss on a Royal Navy frigate contract that has been hit by Brexit, Covid, ...

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For investors, that kind of contract risk is a reminder that not all defence exposure behaves the same way when costs move. This article looks at how that news might feed through to a wider group of defence-related companies and highlights 3 stocks from our Defence Sector...","collect":0,"end_time":0,"defaultTopTitle":"simplywall.st","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4588":"碎股","BK7115":"航天航空与国防","BK4585":"ETF&股票定投概念","ITA":"iShares Dow Jones U.S. Aerospace","EOS.AU":"ELECTRO OPTIC SYSTEMS HOLDIN"},"translate_title":"3只利润率和融资风险备受关注的国防股","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"EOS.AU":1,"ITA":0.8},"content_text":"Defence stocks are back in focus after Babcock International reported a 19% fall in underlying operating profits and a £140m loss on a Royal Navy frigate contract that has been hit by Brexit, Covid, and cost inflation. For investors, that kind of contract risk is a reminder that not all defence exposure behaves the same way when costs move. This article looks at how that news might feed through to a wider group of defence-related companies and highlights 3 stocks from our Defence Sector Stocks screener that could be positively exposed to these shifting contract and demand trends. AdvertisementSpirax Group (LSE:SPX) Overview: Spirax Group provides thermal energy and fluid technology solutions worldwide, supplying steam systems, electric heating, and specialised pumps used in everything from food processing and pharma production to power generation and semiconductor manufacturing. Operations: Spirax Group generates most of its revenue from Steam Thermal Solutions (£853.4m), with Electric Thermal Solutions (£441.3m) and Watson-Marlow Fluid Technology Solutions (£408.2m) also meaningful contributors across a broad global customer base. Market Cap: £5.2b Spirax Group may appeal to investors seeking defence and industrial exposure with a tilt toward efficiency, decarbonization, and higher-margin services rather than large, complex contracts such as the frigate deal that affected Babcock. The company is focusing on energy optimisation and digital connectivity. At the same time, a shift toward more stable maintenance and solutions sales is intended to support steadier earnings and cash flow, even as recent profit margins have softened and debt levels raise questions about resilience. The combination of a dividend track record, a premium P/E rating, and mixed signals from recent earnings suggests that a significant amount of expectation is already reflected in the share price, while the overall picture on growth opportunities and risk management remains more nuanced than short-term headlines might indicate. Spirax Group’s premium P/E, dividend record, and push into higher margin energy optimisation raise a big question, and the 2 key rewards and 1 important warning sign could reveal what the market might be missing right now LSE:SPX P/E Ratio as at Jun 2026 Electro Optic Systems Holdings (ASX:EOS) Overview: Electro Optic Systems Holdings develops and sells advanced defence and space technology, including remote weapon systems, counter drone and high energy laser weapons, as well as space surveillance and satellite tracking equipment used by military and government customers worldwide. Operations: Electro Optic Systems generates most of its revenue from Defence at A$115.8m, with Space contributing A$12.7m across Europe, North America, Australia/Asia and the Middle East. Market Cap: A$2.26b Electro Optic Systems may appeal to investors who want pure defence technology exposure rather than complex, long dated shipbuilding contracts like the one affecting Babcock. Its counter drone systems, 100 kW laser weapon exports and space domain awareness offerings sit in areas that many governments are prioritising. At the same time, the company is still loss making, relies entirely on higher risk external funding for its liabilities and has recently faced a A$4m penalty over disclosure, so governance and execution require close attention. The equity raising, board refresh with senior ex military leaders and growing European and US contract activity give this stock a distinct risk reward profile that some investors may wish to understand in more depth. Electro Optic Systems’ shift toward counter drone, laser weapons and space awareness is catching attention, but the real story may sit in the contracts behind those headlines. The analysis report for Electro Optic Systems Holdings could surface what the recent penalty and funding structure might really mean for investors next. ASX:EOS Earnings & Revenue Growth as at Jun 2026 Ceres Power Holdings (LSE:CWR) Overview: Ceres Power Holdings develops fuel cell and electrochemical technologies that help customers produce low carbon power and green hydrogen, supplying core cell and stack hardware as well as modules for data centres, industrial sites, shipping, and heavy industry applications such as refineries, green steel, and eFuels. Operations: With no segment split disclosed, Ceres Power currently generates reported revenue primarily from Asia at £28.0m, followed by Europe at £4.6m and North America at £0.1m. Market Cap: £1.28b Ceres Power sits at the intersection of cleaner energy and more resilient power, which is increasingly relevant as defence customers and critical infrastructure operators seek lower carbon but highly reliable supply. The company’s licensing model, high gross margins and partnerships in Asia and Europe aim to turn today’s loss of £47.6m on £32.6m of revenue into a future royalty stream, yet recent equity raising and reliance on external borrowings underline ongoing funding risk. Analyst interest, new on site power collaborations such as the Centrica tie up, and a young management team trying to commercialise solid oxide technology at scale give Ceres Power an unusual mix of promise and execution risk that deserves closer scrutiny in this defence focused context. Ceres Power’s high gross margins and licensing model could be setting up a very different earnings profile to what today’s £47.6m loss suggests, and the analyst forecasts for Ceres Power Holdings hints at how that story might shift once one key assumption is tested LSE:CWR Earnings & Revenue Growth as at Jun 2026 The three defence stocks in this article are only a starting point, with the full Defence Sector Stocks screener surfacing 38 more companies that pair defence exposure with equally compelling business stories and financial traits. Use Simply Wall St to identify, filter, and analyze the specific catalysts, contract profiles, and risk factors that matter most so you can focus on the highest conviction ideas in this sector. Take Control of Your Investment Journey  If Spirax Group or any of these companies sound like a great opportunity, register for FREE with Simply Wall St and add your companies to a Watchlist to monitor the share price against the fair value the ideal entry point.\n            Once you've made your move, manage your holdings with our Portfolio Command Center that filters out the noise to deliver only the most critical, actionable updates.\n            Throughout your journey, our Community allows you to filter the best ideas from thousands of investor perspectives.\n            By uncovering hidden catalysts and risks early, you'll accelerate your decision-making and stay one step ahead of the market.\n         Seeking Fresh Alternatives Beyond Defence? New ideas move first, and the best entry points often appear just before momentum starts flying. Catch potential breakouts while it matters and before they stop looking under the radar. For now, act while conditions remain in your favour.  Spot resilient income opportunities as yield hunters crowd in by scanning our curated 5 dividend fortresses that focus on durability while payouts still look appealing. Track the backbone of future computing before attention fully shifts by reviewing the hand picked 31 quantum computing stocks shaping next generation processing. Get ahead of grid modernisation themes as capital rotates by checking the focused 34 power grid technology and infrastructure stocks powering transmission, stability, and electrification projects.   This article by Simply Wall St is general in nature. We provide commentary based on historical data\n        and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your\n        financial situation. We aim to bring you long-term focused analysis driven by fundamental data.\n        Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.\n        Simply Wall St has no position in any stocks mentioned.Valuation is complex, but we're here to simplify it.Discover if Electro Optic Systems Holdings might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. 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