From budget to delivery
Faster procurements, long-term budget commitments and record order books give the industry better conditions to invest. McKinsey estimates that Europe's defence spending could approach EUR 800 billion by 2030, while major European defence companies and defence electronics companies have order books equivalent to around 3.7 times annual revenue.
Capacity becomes the next competitive advantage
Capacity expansion has moved from planning to execution. New factories, higher production rates, more local production and a larger role for specialised subcontractors show that the industry is actively tackling its bottlenecks.
Rheinmetall's preliminary Q2 results are a clear example. Revenue increased by 69 percent and operating profit was around 20 percent above market expectations.
Q2 shows who can deliver
The half-year reports show that previous orders are now starting to show up in deliveries, margins and cash flows. Saab reported close to 30 percent organic sales growth, while Kongsberg increased EBIT by 49 percent.
At the same time, the differences between companies are becoming clearer. Fixed-price agreements, customised programmes, limited production capacity and high capital tie-up affect companies differently. For the fund, this means that exposure is weighted based on regions, sub-segments and the companies' relative strength in areas including delivery capability, product mix and contract quality.
Asia demonstrates the value of fast delivery
This development is not limited to Europe and the US. South Korean defence companies are strengthening their global position through rapid series production, competitive lead times and local manufacturing at the customer's site.
Hanwha Aerospace and Hyundai Rotem show how fast initial delivery can be combined with technology transfer, local production and long-term industrial partnerships.
The technology shift is determined by integration, not individual innovations
Modern defence capability is increasingly built through integrated networks of sensors, data, software and effector systems. Start-ups and specialists are raising the pace of innovation, while larger defence companies contribute certification, production, customer relationships and life-cycle support.
R&D, acquisitions and strategic partnerships therefore strengthen both the sector's growth and its ability to develop and integrate new priority defence capabilities.
Valuations open the door to a results-driven stock market phase
Defence companies' previous valuation premium has rested on strong growth, improved margins and long-term structural demand. In our assessment, these drivers remain intact and have in several cases strengthened.
Now that the sector is valued closer to the broad stock market, the starting position has improved. The next stock market phase is therefore expected to be driven to a greater extent by deliveries, profits and cash flows rather than continued broad multiple expansion.
Heading into the second half of 2026
The defence sector is entering H2 2026 with stronger fundamentals, record order books and lower valuations than before. The market is likely to place greater emphasis on execution, margin improvements and cash flows.
Our view on the sector remains positive. At the same time, the reports show that companies' positions differ clearly between regions and sub-segments. The portfolio's weighting therefore takes into account where we see the best combination of growth, delivery capability, profitability and valuation.
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This text has been published by Finserve Global Defence & Security Fund and is intended for information purposes only. The content does not constitute investment advice and is based on publicly available sources as well as the fund's own assessments. Past performance is no guarantee of future results. The value of an investment in the fund can both increase and decrease, and there is no guarantee that investors will get back the full amount invested. Potential investors should consult their own professional advisers before making an investment decision.
The material above is published by a third party through Nordic Defence Sector and does not constitute editorial content from the NDS newsroom.