Hensoldt’s Order Bonanza Meets a Cash Flow Reality Check as Investors Grow Wary

Defence group Hensoldt posts record orders and backlog, yet share price falls 14% below its 200-day average as free cash flow conversion slumps to 40%.

Hensoldt ended the first quarter with more than twice the order intake it recorded a year earlier, yet the share price continues to drift lower. The defence electronics group booked €1.483 billion in new orders, up from €701 million in the prior-year period, driven by large contracts for the Puma and Schakal armoured vehicle platforms and expanded work on Eurofighter radar systems. The book-to-bill ratio hit 3.0x, and the order backlog swelled to roughly €9.8 billion — an all-time high that provides planning security well into the 2030s.

The top-line numbers look equally robust. Revenue advanced 15 percent to €496 million, and adjusted earnings before interest, taxes, depreciation and amortisation jumped nearly 47 percent to €44 million, pushing the margin from 7.6 to 8.9 percent. Management reaffirmed its full-year guidance for around €2.75 billion in sales and an adjusted EBITDA margin of 18.5 to 19.0 percent.

Yet the stock cannot gain traction. The shares closed at €71.98, about 14 percent below their 200-day moving average and down more than a third from the 52-week high of €115.10 set in October 2025. Technical indicators flash warnings: the relative strength index stands at 71, signalling overbought conditions even after the recent decline. Short interest has climbed to roughly 3.28 percent, more than double the twelve-month average of 1.42 percent, reflecting a growing conviction among institutional bears that further losses lie ahead.

The culprit is cash flow. Hensoldt’s free-cash-flow conversion rate has slumped to around 40 percent, compared with 77 percent in the same period last year. The drop stems from lower customer advance payments and higher capital spending as the company races to close the gap between its swelling order book and delivery capacity. This year Hensoldt plans to add roughly 1,600 new positions and has earmarked about €1 billion in investments through 2027. A deal with United Monolithic Semiconductors will secure the supply of 900,000 gallium-nitride components for radar systems by 2030, supporting platforms such as the Spexer family, Skyranger and IRIS-T.

The cash flow squeeze comes at a sensitive moment for the broader European defence sector. Hensoldt did not trigger the latest sell-off, but it was swept up by the downdraft after shipbuilder TKMS confirmed its outlook but disappointed with a decline in net profit. Shares of Rheinmetall and RENK also retreated as sentiment shifted. The chart adds to the pressure: Hensoldt’s stock now trades 7.13 percent below its 50-day average and has lost 6.23 percent since the start of the year.

Management is pushing ahead with strategic initiatives designed to lift margins over time. At the AFCEA trade fair in Bonn, Hensoldt is showcasing its "software-defined defence" concept, betting that software-centric sensor and AI solutions will yield higher margins than traditional hardware sales. The full takeover of BAF is expected to close by mid-2026, and the Dutch optronics specialist Nedinsco was acquired in March. For the full year, the company expects a book-to-bill ratio between 1.5 and 2.0x, which would keep the order backlog at elevated levels.

Investors will have several near-term catalysts to watch. On 22 May, shareholders at the annual general meeting in Munich will vote on a proposed dividend of €0.55 per share, a 10 percent increase from last year. Before that, still in the first half, a decision on a major Canadian project could provide a spur to the stock. The half-year report, due on 31 July, will bring renewed scrutiny of free cash flow and the pace of the capacity expansion.

Analyst opinion remains split. The median target among 14 analysts is €90.31, with Deutsche Bank at the bullish end on €101. The range is wide: from €57 to €114, reflecting the uncertainty around how quickly Hensoldt can translate record orders into cash generation. For now, the market seems to be taking the short-term cash pressure more seriously than the long-term order visibility – a tension that will only be resolved when the financial reality catches up with the operational momentum.