TKMS: A Record €20.1 Billion Backlog Meets the Hard Part of Turning Budgets Into Hulls

Stifel and Bernstein back TKMS with €105 and €125 targets as revenue rises 19% and the order backlog reaches a record €20.1 billion.

Two broker endorsements within four days have put TKMS back in the spotlight, but the numbers underneath the headlines tell a more layered story than the price targets alone suggest. Stifel kicked things off on 18 September, initiating coverage with a Buy rating and a €105 target. Bernstein Research followed on Monday, with analyst Adrien Rabier restating an Outperform call and a €125 target, pointing to rising European defence budgets and an average annual growth rate of four percent through 2035. The stock closed Thursday at €85.20.

Those recommendations landed alongside a fresh operational win. According to media reports, subsidiary TKMS ATLAS UK picked up a contract from the British Ministry of Defence on 17 September to develop a next-generation torpedo-defence system. It is the kind of award that fits neatly into the broader rearmament narrative now shaping European naval procurement, as governments modernise their fleets and hand out long-dated development contracts.

The order book is not the problem

The harder evidence sits in the interim figures for the first nine months of fiscal 2025/26. Revenue climbed 19 percent year on year to €1,890 million, while the order backlog swelled to a record €20.1 billion. Adjusted operating profit rose 13 percent to €110 million. Management used the momentum to lift full-year guidance, with Handelsblatt reporting that the board is now targeting an adjusted operating margin of up to 6.5 percent.

That combination — a bulging backlog and a raised margin ceiling — is what gives the bullish case its substance. Yet a backlog is only as good as the yard's ability to convert it. Submarine programmes demand heavy upfront investment and tie up industrial capacity for years, which means the real question for investors is not whether TKMS can win work, but whether it can execute at margins that justify the current enthusiasm.

Early September offered a reminder of both sides of that equation. On 2 September, TKMS handed over the submarine INS DRAKON to the Israeli Navy, closing out the Dolphin-AIP programme. The delivery underscores the group's technical reliability — and simultaneously marks the end of an established revenue stream. New initiatives now have to slot in without a gap, and management faces the task of filling freed-up yard capacity with profitable fresh orders.

Partnerships as a cost-sharing lever

Cross-border alliances form the second pillar of the growth story. Roughly three weeks ago, TKMS and Fincantieri signed a memorandum of understanding to deepen their submarine and underwater cooperation, with both sides intending to establish a joint framework by year-end. A second memorandum with Spain's Navantia followed, aimed at strengthening a strategic partnership on selected submarine projects, again with the goal of a cooperation framework in place by the end of the year. TKMS also advanced talks on an underwater cooperation with Fincantieri and, about two weeks ago, further developed the draft design for Germany's F127 frigate project together with partners.

If these arrangements mature into joint bids for large international tenders, the addressable market expands sharply — a strengthened consortium carries far more weight in state procurement processes. That is the path that could bring the €125 targets within reach.

Where the optimism can stall

The counterarguments are concrete. Memoranda of understanding are legally non-binding and generate no firm orders. Negotiations over industrial work-sharing and intellectual property tend to be slow in defence cooperation, and any stall in the Fincantieri or Navantia talks would quickly drain the consolidation narrative. National procurement decisions also shift with parliamentary debate and changing budget priorities; delayed major orders risk temporary underutilisation of the yards, pushing up the fixed-cost ratio and weighing on operating profitability. Modern weapons systems add technical risk of their own — new developments such as the British torpedo-defence system demand extreme precision under tight deadlines, and unexpected engineering hurdles can trigger rework at the company's own expense, a pattern that has eroded margins on flagship projects across the sector before.

The chart level that decides the next move

Technically, the stock is trading at €84.30, right against its 200-day moving average of €84.89 — a line market participants treat as a gauge of the overarching trend. Holding that support and reclaiming €84.89 quickly would keep the broader uptrend intact and open the door to another run at previous highs. A sustained break below it would instead point to an extended consolidation. Since the start of the year the shares are up 27 percent, and they currently sit 22 percent below their 52-week high.

The next hard catalyst is the year-end deadline. TKMS and Fincantieri aim to formalise their joint cooperation framework by then. A timely agreement would give the market position a durable industrial foundation; if the contractual lock-in slips, pressure on the valuation is likely to build.