At 6ft 3in tall and more than 15 stone, President Donald Trump is a big beast. And he has been throwing his weight around with relish since moving back into the White House.
Lambasting Ukrainian president Volodymyr Zelensky, wading into the Middle East, slapping tariffs on neighbours –Trump seems happy to defy rules and norms.
It has all the signs of a dangerous cocktail, and defence stocks are soaring as European nations pledge to increase spending on protecting their interests.
Scattered across the stock market, however, are some hidden gems whose promise has yet to be recognised in the new world order.
All involved in defence, these shares are more keenly priced than better-known peers yet they are making progress, optimistic about the future and should deliver significant rewards for canny investors.
Ukrainian military learn how to fly drones – an essential part of the war effort – in the country’s Lviv region
MTi Group
Russia’s brutal invasion of Ukraine is upending convention, not just in terms of who sides with whom but also in how war itself is waged. Drones have become a key weapon, with the Ukrainians upping production to almost four million a year and Russia racing to keep pace.
In order for these unmanned vehicles to be effective, they have to be deadly accurate both in where they are going and how.
MTI Wireless Edge helps drones to reach their destination, even if they are beset with obstacles, from natural hazards to sophisticated jamming techniques designed to throw unmanned vehicles off-kilter.
Headquartered in Israel, MTI is a world leader in the production of antennae, supplying defence companies both at home and across the globe. The kit is used to direct drones in the air, on the ground and at sea. The antennae also help to identify and intercept rocket attacks and can even be wrapped around missiles to maximise accuracy and reduce risk.
With the world becoming more unpredictable by the day, interest in MTI products is growing, not least in Germany, which is building a new missile defence system deploying MTI’s equipment. Elsewhere too, orders are coming in thick and fast from a substantial pipeline of new opportunities.
MTI is a pioneer in irrigation as well, developing sensors that can reduce water usage by up to 35 per cent. Initially developed for arid regions – including California, Australia and the Arabian Gulf – recent orders have come from France, Italy and even Sweden, as farmers and park owners strive to keep land fertile amid changing weather patterns.
Moni Borovitz, MTi Group’s chief executive, also builds antennae for 5G towers, a fast-growing market where annual expenditure is approaching £75 million.
MTI has honed its technology at home but around 55 per cent of revenues are generated overseas – a percentage that is likely to increase over time.
Results for 2024 are out later this month and should reveal rising sales and profits, with further growth expected this year and beyond. MTI pays decent dividends too, with 3.3 cents (2.6p) expected for the year just ended, rising to 3.4 cents this year and 3.6 cents next.
The Borovitz family owns about 30 per cent of the shares, so members’ interests are closely aligned with individual shareholders, and since MTI floated on Aim in 2006 dividend payments have been missed only once, after the global financial crisis.
Midas verdict: At 58p, MTI shares are well below their 2021 peak of 87p. That seems undeserved. The company’s technology is world-class and interest is growing. Buy.
Traded on Aim
Ticker: MWE
Contact: mtiwirelessedge.com or 00 972 3 900 8900
Headquartered in Israel, MTI is a world leader in the production of antennae, supplying defence companies both at home and across the globe
MSI
The MSI-DS Terrahawk Paladin is a common sight on Ukraine’s armed vehicles. Modular, remote-controlled and ruthless, the air defence weaponry can spot drones two miles away and shoot them down as they approach.
MS International designed and developed the system that has been deployed across Nato and used to great effect in Ukraine and elsewhere.
Based in Norfolk, MSI moved into land-based kit just three years ago, but chairman Michael Bell has spent decades developing its Seahawk gun range for use at sea.
These top-tier arms can defend ships from attacks even in rough and volatile conditions, and the Royal Navy has been a customer for years. The US Navy has become a fan too, choosing to install Seahawks on all new and existing vessels.
MSI’s heritage dates back to before the First World War, and the group has been involved in sophisticated electronic weaponry since the 1970s.
Bell, 79, has been with the business since that time, and was joined in the 1980s by finance director Michael O’Connell, 75.
Succession strategies are under review, but both Bell and O’Connell are fighting fit, love the business they have built and are highly confident about its future prospects.
About 70 per cent of revenues come from defence, but the group also makes forks for forklift trucks, builds petrol stations and surrounding malls, and provides signage for garages and other businesses, from Starbucks to Amsterdam’s Schipol airport.
Bell has little time for City folk, preferring to focus on business growth and cash generation. The approach has served MSI well, with sales, profits and dividends all moving ahead at pace.
Midas verdict: At £10.64, MS International shares have had a good run but are still considerably cheaper than peers.
With world-class kit, global recognition and vibrant leadership, the business shows what small UK defence firms can do. Buy and hold.
Traded on: Aim
Ticker: MSI
Contact: msiplc.com or 01302 322133
The MSI-DS Terrahawk Paladin, a piece of remote-controlled air defence weaponry, can spot drones two miles away and shoot them down as they approach
Pennant International
Military gear does not come cheap. Nuclear submarines and aircraft carriers cost billions of pounds, helicopters come in at tens of millions and even a tank will leave little change from £10 million.
Upfront costs represent just 20 per cent of the overall price, however – the remaining 80 per cent is spent on maintenance and support.
Pennant International provides that support, helping armed forces around the world ensure assets work how they should, when they should and where they should.
The stakes could not be higher. Faulty parts, dodgy mechanics or systems going down can literally mean the difference between life and death, along with vehicles failing on the field or lying idle at critical times.
Based in Cheltenham, Pennant historically trained UK military personnel in how to maintain kit, from Chinooks to frigates to fighter planes. Highly regarded, the division has suffered from falling workloads, as Government ministers prevaricate over defence strategy and procurement.
Frustrated by persistent delays, chief executive Philip Walker pivoted to software, providing technology so that military personnel can comply with standards, manage reams of data and make sure parts can be sourced quickly and competitively.
Helping military assets work as effectively and cost efficiently as possible, Pennant is a global market leader, and customers include Canada, Australia and several European nations.
Midas verdict: Pennant shares have fallen from a peak of more than £1.30 in 2018 to 28p today. The slump reflects disappointment around training contracts and some concern about Walker’s new direction.
For investors in search of undervalued defence firms, this makes Pennant a stand-out candidate. Walker and his team are highly ambitious and their services are more important than ever, as governments try to make the most of every penny they spend.
Traded on: Aim
Ticker: PEN
Contact: pennantplc.com or 01452 714914
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