Former defence minister Christopher Pyne loves a gun pic — he’s one of the security industry’s biggest supporters — and a new national security investment fund has secured him as an advisor.

Pyne is advising a Brisbane fund manager which has launched a $40m fund to focus on cyber security.

“Cyber security and related services including geospatial, intelligence, procurement, and delivery of defence contracts etcetera, is paramount to securing Australia’s critical infrastructure and domestic businesses,” says Arawa Capital founder Graham Cox.

“You only need to look at Toll Group who has suffered two large cyber attacks in 2020 which has crippled the company. Blue Scope, MyBudget and Services NSW.”

Cox anticipates investing in up to four cyber security and national security companies, with an initial focus on Australia, in the next two years.

“Investors see this sector as hard to access, yet are eager to take a position as it is highly protected from market volatility due to the large amounts of annual government spend and the tidal wave of demand and investment being made by government agencies and businesses in cyber security and related services.”

This fund is open only to sophisticated and professional investors.

Retail investors have a range of options to consider on the ASX. The companies in the table below have direct exposure to the defence sector but there are a range of others listed in Australia which have partnerships in that area, such as travellers’ diarrhoea medicine company Immuron (ASX:IMC).

Code Name Price June 9 $ 1 year return % Market Cap $
OEC ORBITAL CORP LTD 0.885 183 $65.9M
CDA CODAN LTD 7.16 131 $1.3B
EOS ELECTRO OPTIC SYSTEMS HOLDIN 6.69 61 $928.6M
XTE XTEK LTD 0.68 46 $35.6M
QHL QUICKSTEP HOLDINGS LTD 0.096 15 $67.1M
BIS BISALLOY STEEL GROUP LTD 0.93 2 $42.2M
DRO DRONESHIELD LTD 0.135 -4 $34.1M
BCT BLUECHIIP LTD 0.064 -19 $38.0M
MOB MOBILICOM LTD/AUSTRALIA 0.07 -22 $19.1M
ELS ELSIGHT LTD 0.31 -35 $32.1M
TTT TITOMIC LTD 0.775 -60 $119.5M
AJX ALEXIUM INTERNATIONAL GROUP 0.043 -62 $27.3M
UUV UUV AQUABOTIX LTD 0.002 -75 $1.5M

The forever industry

Defence and national security more broadly are protected from the ‘ups and downs’ of economies so long as government money continues to flow.

“If you look at the US, they’ve been heavily impacted by COVID-19. But the government has rated its defence industry as critical, and it’s continued to operate through the shutdown,” Pac Partners senior equities analyst Heath Andrews told Stockhead in May.

“My view is spending on defence will probably increase rather than fall in the near term. US-China relations seem to be deteriorating, and they’re the two main players so I think defence spending will ramp up, and Australia is obviously more leveraged to the US in that regard.”

However, analyses of budget documents earlier this year revealed that the government has underspent on equipment since 2016 by $6.1bn.

The Australian Strategic Policy Institute’s Marcus Hellyer has also warned that as bills come in for over $100bn worth of frigates, submarines and infantry vehicles in the next three years, the Department of Defence budget could be pinched.