THERE’s nothing as defensive as defence. This is particularly true in America, where the giants of the industry float serenely above the stock-market turmoil. Lockheed Martin shares have outperformed the S&P Composite Index, a measure of the wider market, by 34% in the past year. General Dynamics, one of Lockheed’s rivals, has beaten the market by 17.1% It’s a similar story here. Shares in BAE Systems, Britain’s big defence group, are down 15% in the past 12 months, but have outperformed the FTSE All Share by 13%.

Those thinking about BAE as a safe haven are arriving at an interesting time. Mike Turner, who dominated the company as chief executive, stepped down at the end of August. The new boss is Ian King, who was the chief operating officer. Turner made some big strategic moves while in charge, taking the company out of Airbus (much to the chagrin of the British government) and investing heavily in America, where BAE is now the Pentagon’s sixth-biggest contractor.

What big moves are left for King to make? There is more international expansion to come – India and Australia are promising markets, while Saudi Arabia should easily eclipse both. America, the world’s biggest defence market, might be more problematic. There is more expansion to come, but it is doubtful that Washington will let BAE compete at the same level as, say, Lockheed Martin, while it is still a foreign company.

One thing King could do – and it would be a bold step – would be to split the company. BAE Inc would become an American-listed group, free to grow into a rival to Lockheed and benefit from the higher valuation the US markets put on defence companies. The rump BAE Systems would continue to build on its UK base and international markets – and, if ministers could be persuaded, could be sold to EADS or another European group desperate to build up its defence portfolio.

The idea of breaking up Britain’s top defence company will be anathema to many - but shareholders might thank King for taking a radical view.

Refinancing

INVESTORS have made some obvious responses to the credit crunch - dumping financial-services stocks and looking for defensive plays - but there are some subtle and indirect effects to look out for.

Chief among these is whether the company you have bought shares in needs to refinance anytime soon. A renegotiation of loan facilities might have been a matter of course a year ago, when leverage was king and loans were cheap and plentiful, but now it is a big event. Wringing money from hard-pressed banks will be tough, and at the very least more expensive than it has been.

Getting to the bottom of a company’s refinancing position can be tricky, requiring a fair amount of research. A pat on the back then to the leisure analysts at stockbroker Evolution, which last week looked at all the stocks they cover through the refinancing prism.

The pub group Wetherspoon, it turns out, has to renegotiate 17% of its loans next year, and 95% of the subsequent facilities the following year. William Hill has £1.2 billion worth of loans that expire in March 2010 (85% of its total debt facilities) while Ladbrokes has a €500m (£389m) bond due in December the same year.

Evolution doesn’t suggest that any of these issues are even remotely life-threatening - there are many other factors to consider when investing in a company apart from when its loans fall due - but they are relevant. If companies are unable to get new loans at the right terms, for example, might they be forced to tap their shareholders for more equity - or cut their dividend payments to conserve cash.

dominic.oconnell@sunday-times.co.uk

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