TKMS Battles Competing Forces: Record Backlog Versus Morgan Stanley’s Sector Downgrade

Thyssenkrupp Marine Systems (TKMS) finds itself squeezed between a historic order book and a market that is suddenly cooling on European defence stocks. The shares dropped 3.7% to €73.90 on the day, dragged down by Morgan Stanley’s decision to cut its rating on the sector to “equal-weight”. The US bank acknowledged the long-term value in defence but cited a lack of near-term earnings and price-target momentum, a call that hit TKMS alongside peers such as Rheinmetall, Hensoldt and Renk.

The sell-off deepens a recent slide. TKMS stock has now shed almost 28% from its January high of €102.90 and sits roughly 9% below its 50-day moving average of €81.20. Over the past seven sessions alone, the shares have lost more than 5%.

Management, however, is trying to shift the narrative. This week, a two-day roadshow is under way in New York and Boston, where executives are meeting investors to discuss strategy and operational progress. The trip is focused purely on capital-market communication; no new orders are expected to be announced. The timing is deliberate: the company wants to demonstrate that its underlying business remains robust even as sector sentiment sours.

Should investors sell immediately? Or is it worth buying TKMS?

That business, on paper, looks strong. TKMS reported a record order backlog of €20.6 billion in its half-year results published in May, underpinned by new submarine contracts from Norway and framework agreements for heavyweight torpedoes. Half-year revenue rose 10% to roughly €1.17 billion, while adjusted EBIT increased by 14%. The adjusted operating margin, however, stood at 5.1%, and free cash flow turned negative to the tune of €72 million, which the company attributed to planned spending on ongoing projects.

For the full year, TKMS is holding to its guidance: revenue growth of 2-5% and an adjusted EBIT margin above 6%, with a medium-term target of more than 7%. The order backlog, the company points out, secures earnings well into the 2040s.

The next set of catalysts arrives later this month. On 22 June, TKMS will present at the Deutsche Bank Defence Conference in London, followed on 24 June by appearances at the Jefferies German & Swiss Corporate Conference in Baden-Baden and a Mediobanca conference in Milan. These events offer a chance to counter the sector downgrade with concrete updates on order prospects and margin development. The next hard numbers will come on 12 August, when third-quarter results are due.

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