Munro Global Growth Small & Mid Cap Fund on Leonardo DRS Inc.
Thesis
Leonardo DRS supplies tactical radar, infrared sensors, force protection and naval propulsion electronics across US and allied defence programmes. Bookings and backlog continued growing even as its shares declined over concerns about the US political and budget outlook. The fund expects a rising proportion of defence spending to flow toward counter-drone systems, space sensing, missile replenishment and shipbuilding, where DRS has substantial content. It regards roughly 22 times forward earnings as attractive relative to a growing backlog and a multi-decade defence modernisation tailwind.
“DRS is growing faster than the budget it sits within.”
Key risks
- Emergency spending on the Iran war could reduce funding available for the Golden Dome missile-defence programme
- A weaker Reconciliation Bill or reduced Golden Dome allocations
- A less generous US defence budget after the midterm elections
- Near-term political pressure on defence procurement sentiment