BAE marched back up the market hill
Fallon’s success in securing additional defence spending is good news for aerospace company
Military blimps are expensive to maintain these days. Michael Fallon, a crimson dirigible of a defence minister, has squeezed an extra £12bn from the prime minister towards £178bn in defence spending over 10 years. That is good news for BAE Systems. Its fortunes, like those of Mr Fallon, are currently buoyant.
Defence spending is recovering in parallel with the economies of western nations and their fear of dangerous foreigners. The strategic defence review published by David Cameron on Monday is proof of the galvanic effect of Islamic State and Putin’s Russia.
Shares in BAE have jumped 14 per cent in just over a week, heading back towards a record high this summer.
BAE is set to benefit from higher spending on Successor nuclear submarines and from cyber security. Extending the life of the Typhoon warplane will generate further work.
British arms merchants will wish that the government had not opted to buy nine Boeing maritime patrol aircraft. Not even the cup holders will be made in the UK.
But the further blow constituted by a reduced order for Type 26 frigates is balanced by plans for an export-friendly warship. Only BAE could produce these, unless Sunseeker starts fitting rockets to its pleasure craft.
BAE and the UK government have a relationship so fractiously close that each sometimes fears it may be chained to a lunatic. The nadir came earlier this decade when the coalition sought value-for-money over security of supply and backed a proposed merger of its defence champion with Franco-German combine EADS.
Peace has broken out, thanks in part to Field Marshal Fallon. But bulls should recall that BAE remains an opaque conglomerate prone to furious rows with its biggest customer. The ratings gap separating BAE from better defence plays may have narrowed. That discount, like Churchill fighting them on the beaches, will never completely surrender.
Gambling and investment shade into one another at the margins. But gaming software group Playtech has failed in its aim of blurring the boundaries in the UK. The Israel-rooted group has walked away from the £460m purchase of Plus500, a spread-betting business, in the face of official disapproval.
The Financial Conduct Authority was unlikely to approve the deal by Playtech’s December 31 deadline. It is a fair guess that the regulator has qualms about Playtech owning Plus500, which was required to tighten anti-money laundering defences earlier this year.
For good measure, the Central Bank of Ireland opposes the acquisition by Playtech of Dublin-based forex broker AvaTrade.
It may not help that entrepreneur Teddy Sagi was jailed in Israel for bribery and fraud before he set up Playtech in 1999. He is no longer on the board, but retains a 30 per cent stake. He has supported Playtech’s strategy of diversification into financial services by selling the group a 91 per cent stake in Cyprus-registered TradeFX, a platform for trading options and contracts for difference, for €208m.
That strategy now looks as redundant as a betting slip for a horse that fell at the second fence. The door to financial services in larger European markets is swinging shut even as online bookies lessen their dependence on Playtech by developing their own software. Playtech needs to find another racing certainty on which to wager its estimated €575m cash pile.
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