The new AUKUS Pact announced last week could be a significant opportunity for some ASX stocks.

The increased spending on defence has for many months been highlighted as an opportunity for companies in this space.

In 2020 and 2021, defence spending was over 2% of Australia’s GDP and this is projected to grow to 3.5% by the end of this decade.

But AUKUS was arguably the most significant security arrangement between Australia, the US and Britain since World War Two.

Headlining the pact was a deal to build nuclear submarines, resulting in an existing deal with the French government to be axed.

This move that gave further boost to the ASX uranium sector, which was already on a high after the recent surge in uranium spot prices.

Only a handful of uranium stocks have projects in South Australia, where the ships will be built, including Alligator Energy (ASX:AGE) and Boss Energy (ASX:BOE).

One stock that may have benefited from a submarine deal was the ASX’s only ship building company Austal (ASX:ASB) but it was snubbed in favour of Adelaide-based ASC.

Yet there are a couple of ASX defence stocks that saw a slight bump last week after the AUKUS announcement.

While at first glance they do not have anything directly to do with the AUKUS deal specifically, they have benefited from the trend of increased defence spending from the Australian government.

 

ASX defence stocks that rose after the AUKUS announcement

One was Bisalloy Steel Group (ASX:BIS) which produces many different types of steel including armour plate for Australia’s ballistics, defence, naval, vehicles market and for overseas customers.

The company enjoyed a bumper year in FY21 with a $9 million profit, up 31% from FY20.

The other ASX stock to gain following the AUKUS announcement was Xtek (ASX:XTE) which developing a range of defence-related products for its customers.

They include tactical and protective equipment, explosive ordnance disposal robots and X-ray equipment, forensics, logistics, and advanced carbon fibre composites and spacecraft satellite and launcher systems.

This company actually received an order from the Morrison government just seven days prior to the AUKUS announcement – a $1.9 million order for spare parts for its Small Unmanned Aerial Systems (SAUS) used by the Defence Force.

However it has been a tough year otherwise – the company went from a $0.3m profit to a $3.95 million loss and its revenue fell from $2.7 million to $28.3 million.

The company blamed that on production delays and cost over-runs and told shareholders the issues have been corrected and it has overhauled its management team.

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