The surprise appointment of John Healey as UK chancellor has put defence spending and related UK defence stocks firmly back on the radar. Markets are weighing how talk of higher public investment, new cost of living support and possible tax changes could ripple through companies with ties to government defence budgets. For investors, this creates a focused question: which stocks might stand to gain if expectations for UK defence spending build from here, and which might not fit that story? This article looks at three stocks from our UK Defence Sector screener that appear positively exposed to these shifts.
Morgan Advanced Materials (LSE:MGAM)
Overview: Morgan Advanced Materials is a UK based specialist in carbon and ceramic components, supplying high performance materials that go into semiconductor equipment, EV charging and drivetrains, wind turbines, medical devices, and mission critical aerospace, security and defence applications.
Operations: Morgan Advanced Materials generates most of its revenue from Thermal Products (£349.9 million), Technical Ceramics (£341.9 million) and Performance Carbon (£307.3 million), with the USA (£421.4 million) its largest geographic market alongside broad exposure across Europe and Asia.
Market Cap: £602.7 million
Investors looking at Morgan Advanced Materials today are getting exposure to high value materials used in defence, aerospace and electrification at a time when UK defence spending expectations are in focus and the company has already invested heavily in added capacity. Analysts expect a shift from losses to profitability with stronger margins, supported by cost saving programs and a portfolio that serves semiconductors, clean energy and defence customers that often need long term, hard to replace components. The flip side is meaningful debt, a dividend that is not well covered by current earnings, and sensitivity to any prolonged weakness in industrial and semiconductor demand. How those trade offs balance out, especially after the upcoming H1 2026 results, is where the real story starts to get interesting.
Morgan Advanced Materials appears to be a capacity-ready supplier in defence and electrification, but the key question is how that positioning compares with its debt load and the pressure on its dividend in the 2 key rewards and 2 important warning signs
Chemring Group (LSE:CHG)
Overview: Chemring Group is a UK based defence manufacturer that supplies sensors, information systems and energetic materials used in munitions, countermeasures and specialist security applications for governments and defence customers worldwide.
Operations: Chemring Group generates its revenue primarily from Sensors & Information (£177.4 million) and Countermeasures & Energetics (£334.6 million), giving it a broad spread across defence electronics and munitions supply.
Market Cap: £1.54 billion
Chemring Group sits at the heart of the UK defence supply chain, producing munitions, countermeasures and high end sensors that align closely with rising expectations for defence spending under the new chancellor and with the UK focus on fresh munitions facilities discussed by management. A record £1.04 billion order book, significant grant funding for capacity expansion and the restart of Alloy Surfaces production under a long term US contract support revenue visibility at a time when markets are watching procurement trends closely. Set against that, recent earnings were weaker, margins have come under pressure and some programmes carry operational or timing risks, so the key question is how those positives and negatives stack up once you look at the full picture of Chemring’s valuation, cash flows and risk profile.
Chemring Group’s swelling order book and fresh grant backed capacity plans raise a clear question: how well does the analysis report for Chemring Group capture the pressures on margins and the contract risks that could flip this story on its head.
Babcock International Group (LSE:BAB)
Overview: Babcock International Group is a long established UK aerospace and defence contractor that designs, builds and supports warships, submarines, vehicles and mission systems for the Ministry of Defence and allied governments, as well as providing training, maintenance and support services across defence and security.
Operations: Babcock International Group generates most of its revenue from Nuclear (£2.1b), Marine (£1.6b), Land (£1.1b) and Aviation (£431.4 million), with the United Kingdom (£3.6b) its core market alongside Africa, Australasia, North America and the rest of Europe.
Market Cap: £5.09b
Babcock International Group gives you direct exposure to core UK defence programs at a time when John Healey’s arrival in the Treasury and Labour’s public commitment to defence and British owned industry have sharpened attention on companies closest to the Ministry of Defence budget. The company is already delivering large contracts such as Type 31 frigates and Skynet, reporting £5.18b of revenue in its latest full year and running a sizeable buyback that has retired 3.37% of its shares. However, earnings fell from £247.1 million to £211.2 million and margins have come under pressure, partly reflecting high leverage and funding risk. How those trade offs between contract depth, cash generation, debt and future defence spending stack up is where the investment debate on Babcock really starts.
Babcock’s share buyback and core UK defence contracts hint at a story that many investors may be only half seeing. Get the full picture with the analyst forecasts for Babcock International Group and see what could change this trajectory next.
The three UK defence stocks covered here are just a starting point. Our full UK Defence Sector screener surfaces 17 more companies that pair solid financial health checks with defence and aerospace exposure through the UK Defence Sector screener. Use Simply Wall St to identify and analyze the specific catalysts, risk profiles and narratives that matter most so you can focus on the highest conviction opportunities in this space.
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Seeking Alternatives Beyond UK Defence Stocks?
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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