By Cecilia Butini 
 

Shares in European defense companies have jumped in opening trade on Monday after Chancellor Olaf Scholz's said at the weekend that Germany would boost its military spending following Russia's invasion of Ukraine.

Analysts see the news as positive for defense companies not only in terms of higher returns, but also as Germany's shift could pose a chance to change investors' attitudes toward this type of stock.

"We strongly believe that the threat of discrimination against the defense sector as ESG-incompatible under the EU's planned taxonomy for sustainable finance will no longer be on the table," Warburg analysts say.

The European Union has been discussing labeling defense companies as "socially harmful" under its social taxonomy plans--which look to classify which economic activities are environmentally sustainable.

Looking at Germany's Rheinmetall AG, for example, Warburg sees its stock with fresh upside potential, as it calculates that the company could gain an additional EUR15 billion in revenue from coming from new orders in its home country.

At 1040 GMT, shares in Rheinmetall shares were 32% higher at EUR140.85.

Citi analysts see German company Hensoldt AG as the main beneficiary of the chancellor's spending proposal, as the defense company makes just over half of its sales in Germany and the government's emphasis appears to be on land and air equipment.

At 1045 GMT, Hensoldt traded 51.4% higher at EUR22.45.

According to Berenberg analysts, Airbus SE, BAE Systems, MTU Aero Engines AG and Dassault Aviation SA should also benefit from Germany's policy shift.

At 1045 GMT, MTU Aero Engines shares were 4.4% higher at EUR219.20 and Dassault Aviation traded 8.4% higher at EUR134.90.

 

Write to Cecilia Butini at cecilia.butini@wsj.com

 

(END) Dow Jones Newswires

February 28, 2022 06:21 ET (11:21 GMT)

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