TKMS Shares Sink 30% from Peak as Defence Sector Downgrade and Cash Burn Offset Record Backlog

German defence contractor TKMS faces stark contrast between record order backlog and 30% stock drop, with Morgan Stanley downgrade, negative cash flow, and Canada submarine project uncertainty.

The German defence contractor TKMS is grappling with a widening gulf between its operational strength and its stock price. While the company boasts a record €20.6bn order backlog, shares have tumbled more than 30% from their January peak, and the latest blow came on Friday when a Morgan Stanley downgrade of the European defence sector to neutral added fresh selling pressure.

The stock closed at €71.10, down 4.31% on the day and nearly 6% for the week. On a year-to-date basis, the shares are still clinging to a 2.67% gain, but technical indicators are flashing warning signs. The current price sits well below the 50-day moving average of roughly €81, and the relative strength index points to a marked cooling in momentum. Annualised volatility has exceeded 50%, underscoring the erratic trading pattern.

That weakness stands in stark contrast to the underlying business. In the first half of the 2025/26 fiscal year, TKMS booked a record order backlog of €20.6bn, revenue climbed 10%, and adjusted operating profit rose by a double-digit percentage. The one blemish on the financials: free cash flow swung to negative €72m. Management attributed the cash burn to planned project expenditures, noting that the year-ago figure had been inflated by a large advance payment from Norway for submarines.

Away from the balance sheet, TKMS is playing a longer game in North America. On 11 June, the company signed two letters of intent for a carbon capture project in Alberta, partnering with Heirloom Carbon Technologies and thyssenkrupp Calvion. While no investment figure was disclosed, the venture is directly tied to the Canadian Patrol Submarine Project. Canada is seeking up to 12 conventionally powered submarines and has shortlisted two bidders: TKMS, backed by Germany and Norway, and South Korea’s Hanwha Ocean.

Under Canada’s Industrial and Technological Benefits policy, the winner must generate business activity in the country equivalent to the contract’s value. By positioning itself with a clean-tech initiative that promises local engineering, research, and value creation, TKMS is making the case that it can deliver industrial infrastructure alongside submarines. The carbon capture agreement is less a standalone climate deal than a strategic argument in the procurement contest.

The market will get a clearer sense of TKMS’s strategy when management takes the stage at Deutsche Bank’s defence conference in London on 22 June. The next quarterly results are due on 12 August 2026. Until then, the stock remains caught between a record order book and the near-term headwinds of a cooling sector, negative free cash flow, and an uncertain outcome in Canada’s submarine race.