JPMorgan downgrades BAE Systems, Qinetiq

JPMorgan Cazenove downgraded Qinetiq and BAE Systems on Tuesday as it took a look at the European aerospace and defence sector.

The bank cut both BAE and Qinetiq to ‘underweight’ from ‘neutral’, noting they have a "meaningful" exposure to the US market - which it said is now in a slowdown - at around 45% and 17% respectively, but trade on higher multiples than EDS peers.

JPM said it expects 2022 to be a good year in terms of top line growth for European civil aerospace. However, companies will face cost headwinds as they ramp up production and navigate supply chain issues.

"Covid-19 is still very much a fact of life for aviation, so we prefer high quality companies with exposure to short-haul air travel," it said.

It upgraded MTU Aero Engines to ‘overweight’ from ‘neutral’ following "significant underperformance" in 2021 and kept its ‘overweight' rating on Safran and Airbus. It also added Airbus to its Analyst Focus List.

JPM cut its price target on Qinetiq to 260p from 320p and on BAE to 555p from 645p.

At 1100 GMT, Qinetiq shares were 2.7% lower at 243.20p and BAE shares were down 0.5% at 542.20p.