Aerospace & Defence Update: Valuation update: Middle East driven de-rating mostly overdone

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Aerospace & Defence Update: Valuation update: Middle East driven de-rating mostly overdone

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Aerospace & Defence Update

Valuation update: Middle East driven de-

rating mostly overdone

Industry Overview

Civil AM stands out, Defence de-rating overdone 18 May 2026

Post Q1, we analyse how valuations across civil and defence have trended in the past Equity

months. The European defence sector has de-rated c20% in the last month, driven by Europe

volatile news flow around ceasefires in Ukraine/Middle East and mixed Q1 results. We Aerospace & Defence

believe this provides a particularly attractive opportunity for exposure to a multi-year

rearming cycle. We highlight Indra and Leonardo (-c18% and -c25% derating resp in the BenjaminResearch AnalystHeelan >>

last month) which we see as attractive idiosyncratic stories that we think have come under Merrill Lynch (DIFC)

+44 20 7996 5723

the radar. Civil Aero 12m fwd PE now sits at a c50% premium rel SXXP, down from c74% benjamin.heelan@bofa.com

at the start of 2026, impacted by the current turmoil in the Civil sector due to the Middle Ronald J. Epstein

East conflict. Despite this, Civil names have remained resilient. Rolls stands out with 115% Research Analyst

BofAS

of 2019 EFH in 1Q26, well ahead of our expectation of 110%, driven in part by a strong +1 646 855 5695

Jan-Feb, but also by the young age of the XWB fleet, which is back above pre conflict levels r.epstein@bofa.com

on our estimates. We see the young age of the Rolls fleet protecting them on the Lorenzo Di Patrizi >>

Research Analyst

downside in coming quarters despite the high levels of uncertainty. MLI (UK)

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Defence: recent de-rating provides enhanced opportunity lorenzo.dipatrizi@bofa.com