3 UK Defence Stocks Linked To Higher Spending Plans

With the UK budget on 28 October set to focus on fiscal restraint while defence spending plans stretch out toward 2035, investors face a mix of caution and potential opportunity. Markets are weighing higher bond yields, possible tax rises and talk of more money for defence. This article unpacks what that backdrop could mean for UK defence supply chain and infrastructure contractors and reveals 3 stocks exposed to this policy story.

The 3 stocks covered below are only a starting sample of this theme, and the full screen surfaced 14 more UK defence supply chain and infrastructure contractors with equally compelling policy-driven stories that are not covered in this article. To go deeper into this idea, head straight to the UK Defence Supply-Chain and Infrastructure Contractors screener to analyze, filter and identify the defence related stocks that best fit your own conviction and risk profile.

Costain Group (LSE:COST)

Costain Group is a long-established UK infrastructure solutions company that works across transport, water, energy and defence, which fits naturally with a defence supply chain theme focused on critical national assets. Most of its revenue comes from transportation projects at about £595 million, with a further £468 million from natural resources work that includes water, energy and defence related infrastructure. The company is valued at around £601 million, putting it toward the larger end of stocks in this screener universe.

Investors looking at defence related infrastructure may want Costain Group on their radar because it blends exposure to UK defence and nuclear projects with a deep footprint in regulated water and transport. A growing order book in areas like water resilience and major transport frameworks offers long-term contract visibility. However, the business is still tied closely to UK public spending decisions and sector specific regulation. Add in recent earnings progress, a focus on higher margin consultancy and digital services, and some caution flags such as insider selling and reliance on external funding, and Costain becomes a stock where the real question is how much of its multi year infrastructure story is already in the price and how much is still being underestimated.

Costain’s multi year infrastructure story, with defence, water and transport contracts, can look underappreciated or fully priced depending on what you focus on. Before you decide, scan the 3 key rewards and 1 important warning sign

TT Electronics (LSE:TTG)

TT Electronics designs advanced electronic components and power systems for performance critical uses in aerospace, defence, healthcare and industrial markets, which puts it squarely in the UK Defence Supply Chain and Infrastructure Contractors theme through its direct exposure to defence platforms and systems. The company supports air, land and naval defence programmes with power conversion, sensors, microelectronics and specialist manufacturing services across multiple brands. TT Electronics has a market cap of about £270 million, placing it in the mid cap range of UK defence related electronics suppliers.

TT Electronics may be worth a closer look if you want direct exposure to defence electronics at a company that is already supplying mission critical components and has recently moved from a loss into a small profit. The stock offers a mix of potential upside from higher defence budgets, improving margins and fresh board expertise in aerospace and defence. These potential benefits are set against real risks from its still modest profitability, slower revenue growth than the wider UK market and a funding model that leans on external borrowing. The key consideration is whether the current valuation fully reflects the improving profit trend and the long running contracts TT Electronics is positioned to win as defence programmes evolve.

TT Electronics has just shifted from loss to profit, yet the real story may be how that small profit interacts with debt, defence contracts and future margins. See the full picture in the TT Electronics financial health report

Solid State (AIM:SOLI)

Solid State is a £108 million UK electronics group that supplies components, battery systems, antennas and complete systems into sectors including defence and security. This ties directly into the defence supply chain theme through its role in sensors, power and communications hardware. Revenue is spread across its Systems division at about £63 million, Components at about £60 million and Power at about £32 million, giving investors exposure to both higher value systems work and steady component demand. That mix, combined with international reach, positions Solid State as a mid sized specialist rather than a single project contractor.

Solid State may be worth considering for a watchlist if you want exposure to defence electronics that is more about long running programmes than one off platforms. Management talks about being designed into radios, batteries and sensors for programmes like Eurofighter, which can translate into repeat orders once a system is qualified. At the same time, margins are still relatively thin and the company leans on external borrowing, so any pause in defence related orders or tighter credit conditions could affect performance. A key point of interest for investors is how this mix of recurring defence work, bolt on acquisitions and funding choices develops through the next phase of defence spending.

Solid State’s role in long running defence programmes can be easy to undervalue when attention is on short term contract headlines. See how that recurring exposure and funding mix fit together in the analysis report for Solid State

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This article by Simply Wall St is general in nature. We provide commentary based on historical data 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 financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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