If President Trump carries via his menace to impose tariffs on all imports into the US, many UK shares will undergo. His promise to “put America first” resonated with nearly all of voters. Nevertheless it may spell hassle for quite a lot of corporations on this facet of the Atlantic.

Nevertheless, there’s one inventory that I believe will do notably nicely from Trump 2.0, no matter whether or not he introduces import taxes focused on the UK. That’s due to his want to make NATO members improve the proportion of their nationwide incomes spent on defence.

Presently, the 32 members have pledged to spend not less than 2% of gross home product on navy {hardware} and personnel. Nevertheless, Trump desires them to go additional.

On 7 January, he advised a press convention: “I think NATO should have 5% … They can all afford it, but they should be at 5%, not 2%.”

On condition that the US ‘only’ spends 3.4%, this would possibly sound a bit unfair. Nevertheless, the purpose that Trump’s clearly making is that he expects others to spend extra in order that America can spend much less.

This implies defence shares with main US contracts may see a fall of their revenues.

One attainable beneficiary

Nevertheless, an organization like Babcock Worldwide Group (LSE:BAB) may prosper.

Throughout the yr ended 31 March 2024 (FY24), the group earned 70% of its income from the UK. It additionally generated an extra 6% from France and Canada, each NATO members.

The group’s publicity to the US may be very small and comes primarily from the provision of parts to its submarine fleet.

Encouragingly for the group, the UK authorities has began a Strategic Defence Assessment and has promised to “set out the path to spending 2.5% of GDP on defence”.

Though this can be a good distance wanting Trump’s 5%, it’s more likely to profit Babcock as governments usually wish to hold defence spending native. The group is at present the second largest provider to the Ministry of Defence.

And now could possibly be a superb time for me to speculate.

Primarily based on its FY24 earnings, Babcock at present trades on 16.3 instances its historic revenue. Nevertheless, that is decrease than, for instance, BAE Programs (19.5).

If it may appeal to the identical a number of as its bigger rival, its market cap could be 19% larger. And with Trump again — and the UK authorities dedicated to spending extra on defence — I see no cause why this couldn’t occur.

My plan

However I’ve issues. The group lately reported £90m of “cost overruns” on the constructing of 5 ships for the Royal Navy.

And its dividend is miserly.

Additionally, I do know that investing within the sector isn’t everybody’s cup of tea. Nevertheless it’s over 4,000 years because the first military was established which, sadly, tells me that international conflicts are right here to remain. And I imagine the primary act of presidency is to guard its folks.

That’s why I’ve put Babcock on my watchlist for once I subsequent have some spare money.

With its spectacular 26% return on capital employed (FY24), £9.5bn contract backlog (30 September 2024), and comparatively low degree of gearing, I believe Babcock’s nicely positioned to profit from Trump’s second time period and the UK authorities’s dedication to spend extra on defence.