The Thales move to buy control of sea drone specialist Exail for €3.9b has pushed underwater defence, sensors, and automation into the spotlight, with rising interest in unmanned systems and subsea infrastructure. With Thales flagging a potential unmanned anti submarine warfare market increasing from €85b in 2023 to more than €700b by 2030, many investors are reassessing which industrial technology and automation stocks could be positioned for this shift. This article breaks down 3 stocks from our screener that are directly exposed to this news theme and may warrant a closer look.

TTM Technologies (TTMI)

Overview: TTM Technologies is a US based electronics manufacturer that supplies advanced printed circuit boards, RF modules, mission systems and radar solutions used in aerospace and defense, data centers, communications, automotive and other high reliability applications.

Operations: TTM Technologies generates about US$1.7b of revenue from Commercial customers and US$1.3b from Aerospace & Defense, with sales mainly from the United States at around US$1.6b and a further US$1.2b from other international markets.

Market Cap: US$16.2b

Investors looking at the Thales and Exail deal as a signpost for unmanned and underwater defense growth may find TTM Technologies interesting because it sits behind the scenes supplying the high end PCBs, RF and radar electronics that make these systems work. The company is already reporting strong earnings momentum and expanding defense focused capacity in the US and Europe. The company’s A&D backlog and exposure to radar, missile defense and unmanned platforms tie directly into rising defense budgets and the expected build out of more automated systems. However, the stock still trades below some fair value estimates despite a high P/E and clear execution risks around new facilities, heavy capex, customer concentration and a funding structure built entirely on external liabilities rather than customer prepayments.

TTM Technologies sits at the crossroads of rising unmanned defense demand and a stretched P/E, yet many investors may not be factoring in the full story around its growth, capex load and funding risks. Get the context with the 4 key rewards and 2 important warning signs

Babcock International Group (LSE:BAB)

Overview: Babcock International Group is a UK based defence and security company that designs, builds and supports complex assets such as warships, submarines, military vehicles and aviation fleets, as well as providing training and mission critical engineering services to armed forces and government customers around the world.

Operations: Babcock International generates about £1.1b from Land, £1.6b from Marine, £2.1b from Nuclear and £0.4b from Aviation, with roughly £3.6b of revenue coming from the United Kingdom and the rest spread across Africa, Australasia, North America, the rest of Europe and other international markets.

Market Cap: £5.1b

Babcock International Group provides direct exposure to the shift toward more connected, automated defence systems at sea and under water, where Thales’ Exail bid has refocused attention on long term spending. The company is already involved in complex naval and submarine programs, wider defence digital work and AUKUS related partnerships, while also returning cash through a £200m buyback. At the same time, compressed net margins around 4%, lumpier aviation revenue and working capital swings on large contracts such as Type 31 highlight execution and cash flow risk. Investors may wish to consider how Babcock’s mix of contract visibility, margin ambitions and role in unmanned and high frequency communications fits within their own objectives and risk tolerance.

Warship and submarine exposure with a £200m buyback gives the Babcock International Group story real momentum, but the real question is whether the current margins and contract profile justify it, according to the analysis report for Babcock International Group

Ashtead Technology Holdings (LSE:AT.)

Overview: Ashtead Technology Holdings rents and operates specialised subsea equipment and services that support offshore energy projects, from survey and robotics work to mechanical cutting, dredging and asset integrity inspections across oil and gas, offshore wind and wider infrastructure markets.

Operations: Ashtead Technology Holdings generates about £203.2m of revenue from Oil Well Equipment & Services, with its £135.9m European business complemented by £29.3m from the Americas, £17.8m from the Middle East and £20.2m from Asia Pacific.

Market Cap: £0.3b

For investors watching the Thales and Exail deal as a signal that subsea defence and automation are moving up the priority list, Ashtead Technology Holdings offers focused exposure to the tools and services that keep underwater projects running. The company combines earnings quality, a P/E below sector averages and multiyear customer backlogs in subsea inspection and ROV services. This comes with meaningful debt and a funding structure fully reliant on external borrowing. Its history of acquiring rivals in survey and robotics and expanding its equipment fleet provides additional scale in a niche market that is attracting fresh capital. The key consideration is whether that balance of growth ambition, rental intensive capex and leverage fits comfortably within your risk appetite.

Ashtead Technology Holdings is growing its subsea footprint fast, but the real story sits in how that rental heavy capex and leverage profile interact with its multiyear order book, according to the 5 key rewards and 1 important warning sign

The three stocks covered here are just a starting point. The full Industrial Technology and Automation screener surfaces 24 more companies in industrial technology and automation with equally compelling narratives around robotics, sensors, communications and subsea systems. Use Simply Wall St to identify, compare and analyze the specific catalysts, financial profiles and business narratives that matter most to you so you can focus on the highest conviction ideas in this theme.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.