TKMS Bolsters Service Revenue with Portuguese Submarine Pact as Net Profit Sinks 41%

TKMS signs strategic submarine overhaul deal with Portugal as net profit falls 41%, but revenue and order backlog grow; stock drops 10.8% weekly.

TKMS is leaning into its maintenance business to steady the ship after a brutal quarter for earnings. The Kiel-based naval specialist on Thursday signed a strategic agreement with the Portuguese navy to overhaul and modernize its existing submarine fleet, a move that bolsters the high-margin service side of the house even as group profitability takes a hit.

The first project under the deal is already locked in: TKMS will repair and upgrade the submarine Arpão starting in autumn 2026. The contract also includes the installation of new equipment and the training of local Portuguese personnel — a typical long-term engagement that feeds recurring revenue. The timing is crucial, because the quarterly numbers released this week tell a less encouraging story for the bottom line.

Revenue climbed 10 percent in the period to €1.17 billion, and adjusted EBIT rose to €60 million, signalling a solid operational improvement. The order backlog swelled to a record €20.6 billion, giving the yards years of visible workload. Yet net profit tumbled 41 percent to just €27 million, squeezed by higher research and development spending and elevated selling expenses. The divergence between top-line growth and earnings quality is the central worry for investors.

That concern is already priced into the share price. The stock was trading at €72.50 on Thursday, down a marginal 0.14 percent on the day but showing a weekly loss of 10.82 percent. The technical picture is weak: the shares are well below the 50-day moving average of €84.58, and the relative strength index at 32.4 has edged close to oversold territory. Analyst sentiment has also cooled — Bernstein’s Adrien Rabier cut his target from €83 to €76, keeping a “Market-Perform” rating and citing depressed sentiment in the wider defence sector, including the drag from the drone war in Ukraine and weaker signals from rival Rheinmetall.

The strain is not confined to TKMS. Parent company Thyssenkrupp, deep in a restructuring, posted a first-half loss of €345 million on Tuesday, with revenue slipping slightly to just under €8.4 billion and free cash flow sinking to minus €1.8 billion. Even so, management has stuck to its full-year guidance. The broader defence industry is also seeing volatility — European governments continue to ramp up spending, illustrated by the UK’s recent order for mobile howitzers worth over $1 billion, but market turbulence has hit most defence stocks hard.

Inside TKMS, the divisional performance was mixed. The submarine business saw a slight drop in revenue, yet EBIT jumped to €21 million from €2 million a year earlier, reflecting better project margins. Surface Vessels posted revenue of €277 million but EBIT slipped to €18 million, showing patchy returns from growth. Atlas Electronics, the electronics and sensor arm, was the standout: revenue rose to €376 million and EBIT hit €41 million, making it the strongest operational driver.

Looking ahead, management is sticking to its full-year targets of 2 to 5 percent revenue growth and an EBIT margin above 6 percent. Medium-term goals call for annual expansion of 10 percent and margins exceeding 7 percent. But the real external catalyst remains Canada’s upcoming decision on a mega-order for up to 12 submarines, where TKMS is battling South Korea’s Hanwha Ocean. A verdict is expected in the first half of 2026. Until then, TKMS will rely on deals like the Portuguese maintenance contract to show it can deliver steady income from services even as the earnings needle stays stubbornly flat.