MARKET REPORT: European defence stocks surge with deal-making set to grow
European defence stocks rallied as analysts predicted an increase in shareholder returns and deal making across the industry next year.
Bank of America said firms have taken huge strides in generating cash over the past two years and now have healthier balance sheets and lower debt.
This means there is greater scope to return cash to investors or pursue mergers and acquisitions, analysts at the investment bank added.
Looking at the London market, Bank of America said it expects Rolls-Royce to reinstate dividends next year.
In a further boost, analysts at Jefferies said Rolls was likely to benefit from its civil aerospace division and improved cash flow.
The broker also sounded an optimistic note on Frances Thales, raising its rating from hold to buy on the belief that the recent Rafale jet orders should increase cash flow momentum.
Shares in Rolls-Royce, which has been one of the best performing stocks in the FTSE 100 this year, rose 0.4 per cent, or 0.8p, to 219.9p and BAE Systems rose in early trading but closed flat at 1007.5p. In Europe, Thales rose 1.1 per cent.