The TASE Aerospace and Defence Opportunity

The TASE Aerospace and Defence Opportunity

The TASE Aerospace and Defence Opportunity

The aerospace and defence sector is experiencing a remarkable surge, with companies listed on the Tel Aviv Stock Exchange (TASE) playing a pivotal role. The TASE has become a nurturing ground for aerospace and defence companies, reflecting Israel’s strategic emphasis on technological advancements in these fields. Key players range from established giants to innovative startups.

Due to the robustness and strategic importance of this sector, it attracts considerable interest from both domestic and international investors. The consistent demand for advanced defence solutions ensures a steady flow of capital into these companies, making them key components of the TASE.

 

Why is Aerospace and Defence Important?

Israel places a high priority on security due to its geopolitical situation, which naturally extends to the development of advanced defence technologies and systems – critical for maintaining national security. Companies in this sector often receive significant governmental support, including financial incentives and contracts.

Israel invests a significant portion of its GDP in research and development, a significant proportion (see exhibit below) of which is directed towards military and aerospace technologies. This investment fuels continuous innovation within the sector, leading to the growth and expansion of companies involved. The country’s numerous strategic global alliances facilitate the export of military and aerospace technologies. Such innovations over time feed into civil markets too.

In exhibit 1 below, we chart the military expenditure in 2023 of countries as a percentage of their Gross Domestic Product (GDP). What is important to note is that although the US spent the most on its military in 2023 ($916bn), it ranks below Israel in terms of military spending as a percentage of GDP (3.5 %, 5.3%, respectively). Israel spent $27.5bn on its military in 2023A and had a GDP of $523.7bn (for reference, the US GDP was ~$27.4trn in 2023A). Ukraine is a clear anomaly in 2023 for very well publicised reasons.

 

Exhibit 1 – Military Expenditure as a % of GDP (highest spending countries) 2023

Military Expenditure as a % of GDP (highest spending countries) 2023Sources: ACF Equity Research Graphics; SIPRI – Trends in World Military Expenditure 2023.

Notes: *Ukraine ranked the highest as a direct result of the Russian invasion in February 2022.

 

Innovations Driving Growth on the TASE

Israel has been recognized globally for its innovation in technology, particularly in cybersecurity, unmanned systems (e.g unmanned aerial vehicles – UAVs), and missile defence and supporting technologies.

Cybersecurity

  • Check Point Software Technologies: CheckPoint was founded by former members of the Israeli military intelligence unit (8200 Unit) and is a pioneer in firewall and VPN technologies.
  • CyberTech Conference: Hosted in Tel Aviv each year, it is the largest B2B cybersecurity networking event.

UAVs

  • Elbit Systems: This company manufactures an advanced UAV – Hermes 450, which is used for reconnaissance and surveillance missions.
  • IAI Harop: Is a combat UAV that is developed by Israel Aerospace Industries and acts a loitering munition, aka a suicide or kamikaze drone.

Missile Defence

  • Iron Dome: This famous missile defence system can intercept short-range rockets and artillery shells.
  • David’s Sling and Arrow: Part of Israel’s multi-layered defence system, is designed to intercept missiles at different altitudes and ranges.

 

In exhibit 2 we highlight companies dual listed on the TASE and the Nasdaq, in the Aerospace and Defence sector. They include:

  • Elbit Systems (Nasdaq/TASE : ESLT) – One of Israel’s largest defence electronics manufacturers – products include UAVs, helmet-mounted systems, electronic warfare suites and avionics.
  • Tat Technologies (Nasdaq/TASE : TATT) – Manufacturers heat exchangers and cooling systems used in aerospace and defence, and provides maintenance and repair for overhaul (NRO) services.
  • Senstar Technologies – formerly Magal Security Systems which was dual listed – (Nasdaq : SNT) – Specialises in perimeter detection systems and management solutions designed to protect critical infrastructure, borders and high-value assets.
  • B.O.S. Better Online Solutions (Nasdaq/TASE : BOSC) – Provides components for aerospace applications, aviation parts and inventory management solutions.
  • ParaZero Technologies (Nasdaq/TASE : PRZO) – Designs and manufactures aerial safety systems, e.g. drone safety solutions (parachute systems) for commercial and recreational UAVs.

There are 2 state-owned Aerospace and Defence companies worth mentioning: Israel Aerospace Industries Ltd. (IAI) and Rafael Advanced Defence Systems Ltd.

 

Exhibit 2 – Peer group of companies on the TASE in Aerospace and Defence

Peer group of companies on the TASE in Aerospace and DefenceSources: ACF Equity Research Graphics; Refinitiv.

 

The aerospace and defence sector on the TASE represents more than just a commitment to national security; it is a beacon of innovation, cutting-edge technological advancements and investment opportunities. As global dynamics evolve, these companies are well-positioned to address emerging challenges and seize new opportunities.

This sector makes for a compelling consideration for investors with a keen eye on future-forward investments. However, they should also consider the inherent geopolitical risks and the cyclical nature of defence spending.

 

 

For investors and corporates interested in deeper insights to make considered investment and operational decisions in this dynamic sector, staying ahead with regular updates and expert analyses from a capital markets perspective is essential. Engage with the latest trends and strategic opportunities by subscribing to ACF Equity Research newsletter

 

 

 

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