Shares in Thales climbed more than 3% in early trading on Monday after Deutsche Bank upgraded the French defence and technology group, citing a robust long-term outlook for European military spending. The FTSE 100-listed stock rose to £187.40 by mid-morning, making it one of the top gainers on the index.
Deutsche Bank analysts moved their rating on Thales from 'hold' to 'buy', arguing that ongoing geopolitical tensions and NATO commitments would sustain higher defence budgets across Europe for years. They highlighted Thales's strong positions in radar, avionics, and cybersecurity as key growth drivers. The upgrade also lifted sentiment for other defence names: BAE Systems added 1.8%, while Chemring and QinetiQ saw more modest gains.
The broader FTSE 100 edged up 0.2% to 8,294 points, supported by the defence sector and a weaker pound. The FTSE 250 rose 0.3% to 20,872. Investors continued to weigh mixed economic data from the UK and US, but defence stocks remained in favour amid persistent uncertainty over security policy in Europe.
Analysts at Deutsche Bank noted that Thales's order backlog had grown steadily, offering revenue visibility well into the next decade. They also pointed to potential upside from the company's digital identity and secure communications divisions, which are less tied to defence cycles. 'Thales offers a rare combination of defence exposure and civil technology growth,' the note said.
For UK pension holders with exposure to FTSE 100 tracker funds, the defence sector's strength provides a modest tailwind. However, analysts caution that valuations in the sector are now elevated after two years of gains, and further upside may depend on actual budget commitments from European governments rather than expectations alone.