14 small caps likely to benefit from increased defence spending
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Prime Minister Malcolm Turnbull wants Australia to be a top-ten defence exporter within a decade — and he’s making $3.8 billion available through a funding program announced earlier this year.
Meanwhile, domestic spending on defence is expanding — the federal defence budget is set at $35 billion this year and it’s expected to grow to $59 billion by 2025-26.
That means opportunity for ASX-listed stocks exposed to defence and security.
Here are 14 ASX small caps likely to benefit.
The much-criticised Joint Strike Fighter (JSF) program alone has snagged Aussie manufacturers $1 billion in contracts and helped to buoy the bottom line of juniors the likes of aerospace manufacturer Quickstep (ASX:QHL).
The $44-million company is one of Australia’s largest contributors to the global JSF program and makes carbon fibre doors, panels and fuselage parts.
In the past six months, Bankstown-based Quickstep has upped its production by 53 per cent, and is on track to triple production over the next three years.
Geospatial imaging tech Spookfish (ASX:SFI) touts its eye-in-the-sky approach as the lifeblood of the intelligence and defence community.
Chief Jason Waller and chairman Jason Marinko were appointed to their respective roles last year with significant experience in the defence sector to further the company’s capability.
Of the defence stocks listed below — and despite no revenue — one of the biggest movers in the past six months has been additive manufacturer Titomic (ASX:TTT) whose process has been used to maintain US Black Hawk helicopters.
It says its technology can help military aircraft, ships and vehicles to be lighter and therefore more efficient with its titanium 3D-printed parts.
By land and sea
When it comes to land travel, specialist steel maker Bisalloy (ASX:BIS) knows what it’s talking about.
The company provides armour for the latest breed of Australian Defence Force Hawkei 4x4s to replace the fleet of Land Rovers and is eyeing off the Future Submarine project.
For the first half of 2018, it had 137 per cent growth in earnings at $3.5 million and an overall $1.5 million profit.
Remote weapon systems provider Electro Optics Systems (ASX:EOS) had a major win to supply 600 of its latest model to a US defence supplier last year and continues to gain momentum with several overseas customers announced since.
Last year the company won bids for tenders totalling $1 billion to provide light vehicles with “unprecedented access to firepower normally reserved for much heavier armoured vehicles”.
Uniform and tactical gear pioneer Alexium (ASX:AJX) has been supplying US armed forces since 2009 and has become a top developer of chemical solutions for military applications.
High frequency communications has been a recent move for tech junior Codan (ASX:CDA). The company delivered its first milestone order for ruggedised radio to a key military customer in Africa in the last half.
Now, they are looking to further penetrate the market and are hopeful US government spending will give it a boost in the second half of the year.
When looking to the future of defence it is hard to go past the prevalence of drones.
DroneShield (ASX:DRO) have already made a fan in Defence Minister Chris Pyne, the pollie last year backing the technology at a defence exhibition in Abu Dhabi.
Now, DRO is moving on to full-scale drone systems it calls DroneSentinal – the first sale announced earlier this week.
Fellow drone-catcher Department 13 (ASX:D13) has teamed up with NYSE-listed Raytheon to develop capabilities of its MESMER solution that takes over control of drones and is already guarding Latin American prisons.
Meanwhile Mobilicom (ASX:MOB) is further enhancing its drone operating system SkyHopper and Orbital (ASX:OEC) is expanding its unmanned aerial vehicle engine assembly and services capability with a new plant next to its biggest customer in Oregon.
So-called leader in the Australian homeland security market, XTEK (ASX:XTE) is fine tuning its small unmanned aerial systems and netting record orders of $42 million to boot.
Brainchip’s (ASX:BRN) baddie-detecting software is pinpointing terrorists in a crowd up to six times faster and Elsight’s (ASX:ELS) encrypted communications are being used by SWAT and special forces.