British warship maker Babcock International Group will rejoin the FTSE 100 index amid a rally in defense stocks as Europe ramps up security spending.
The London-based firm will replace Hargreaves Lansdown in the benchmark on Monday, FTSE Russell said in a statement. A spot is opening up in the index because Hargreaves has agreed to a takeover by a group of private equity firms.
Babcock shares have risen 51% this year and are set for their biggest quarterly gain since 2001. European nations are vowing to rearm as the US under President Donald Trump reduces support for its allies.
Since Russia invaded Ukraine, Babcock has been hired by the UK Ministry of Defence to maintain and manage vehicles given to the country by Britain.
The firm also builds Britain’s battleships, signing a GBP1.25 billion ($2.16 billion) contract in 2019 to construct five frigates, though the programme has been mired in disputes and cost overruns.
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Babcock’s rally has lifted its market value to GBP3.8 billion, the highest among FTSE 250 index members that are eligible for promotion to the FTSE 100.
While the stock now trades at a 40% premium to its 10-year average price-earnings multiple, “sustained spending could make this valuation look less demanding”, said Susana Cruz, a strategist at London stockbroker Panmure Liberum.
Babcock’s promotion to the FTSE 100 comes more than seven years after its relegation to the FTSE 250. The company’s place in the mid-cap gauge will be taken by JPMorgan European Growth & Income, FTSE Russell said.
Chart: Bloomberg
