TKMS Breaks Through €100 Before Settling Back as Order Book Hits Record €20.1 Billion

German shipbuilder TKMS raises FY guidance again, hits record €20.1B backlog, but free cash flow turns negative amid defense spending surge.

The rally in German shipbuilder TKMS showed no signs of losing steam on Wednesday, with shares briefly topping the €100 mark for the first time before paring gains. The stock, which had closed at €88.50 the previous session, surged as much as 15 percent intraday and was last trading at €94.50 — a gain of 6.8 percent — after the company raised its full-year guidance for the second time this fiscal year.

The upgraded outlook, unveiled alongside nine-month results, underscores how deeply the European defense spending boom has penetrated the submarine and frigate segment. TKMS now expects revenue growth of 10 to 12 percent for fiscal 2025/26, a substantial jump from the 2 to 5 percent previously communicated. Management also lifted its adjusted EBIT margin target to as much as 6.5 percent, up from the earlier guidance of above 6 percent.

Record Backlog Points to Years of Visibility

The headline number, however, sits in the order book. Backlog reached approximately €20.1 billion at the end of June — an all-time high that gives the Kiel-based group exceptional revenue visibility. New orders during the first nine months totaled €3.6 billion, a figure that looks modest only against the extraordinary €8.6 billion booked in the same period last year.

Recent contract wins have come from multiple fronts. Norway placed orders for two additional submarines, while the German navy commissioned four more MEKO A-200 frigates. Canada is viewed as the preferred bidder for a submarine program worth up to €15 billion covering as many as twelve boats, with CEO Burkhard expecting a final contract before year-end. India, meanwhile, is in final negotiations for six submarines under the P-75I project.

The submarine division delivered the strongest operational performance, with segment revenue climbing to roughly €1 billion and EBIT quadrupling to €46 million. Subsidiary Atlas Electronics also posted robust growth, lifting revenue by 28 percent and EBIT by 31 percent.

Solid Quarter, But Cash Flow Remains a Concern

The nine-month figures themselves were encouraging. Revenue rose 19 percent to approximately €1.9 billion, while adjusted EBIT increased 13 percent to €110 million, up from €98 million in the prior-year period. The resulting operating margin of 5.8 percent came in slightly below the 6.1 percent recorded a year earlier — a detail that tempers the otherwise upbeat narrative.

Free cash flow, however, remains the weak spot. The company reported a negative free cash flow of €204 million for the first nine months, a dramatic swing from the plus €631 million posted in the comparable period last year. Management attributes the deterioration to advance payments tied to the heavy inflow of new construction projects — a cost of doing business when the order pipeline is this full.

Analysts Respond, Though Views Diverge

Metzler's asset management arm moved quickly after the release, lifting its price target from €105 to €115 while maintaining a "Buy" rating. Analyst Alexander Neuberger described the third-quarter performance as "very solid" and interpreted the second guidance hike as a strong signal, adding that another forecast update could follow once the Canadian U212CD contract is finalized.

Bernstein struck a more cautious tone, holding a "Market-Perform" rating with a €76 target — though the firm acknowledged that medium-term group targets could come up for discussion given the current momentum. Deutsche Bank Research, which had issued a "Buy" with a €110 target in late July, has not yet updated its stance.

Strategic Moves and Side Currents

Beyond the numbers, TKMS has been active on the corporate front. The company withdrew its non-binding offer for German Naval Yards Kiel in July after completing due diligence, citing no further interest in the yard. The move removes near-term integration risks but leaves open the question of how TKMS intends to expand its shipyard capacity.

The company is also scaling up hiring, drawing skilled workers from the automotive sector, and has flagged new demand emerging from the Gulf region in the wake of the Iran conflict. Saab, meanwhile, received an order worth 8.7 billion Swedish kronor from TKMS in mid-July for frigate equipment — a reminder of the scale of programs currently in execution.

The stock has gained 43 percent since the start of the year, making it one of the standout performers in Germany's defense sector. The path higher has not been entirely smooth — protests outside the Kiel shipyard in early August drew attention to the political sensitivities around arms exports, though no direct impact on operations has been established. With a record order book, rising guidance, and major contract decisions pending in Canada and India, the coming months will test whether TKMS can convert its pipeline into sustained margin expansion.