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The way forward: From rearmament to profitable growth
Finserve Global Defence & Security Fund declined by 1.35 per cent in September. In this month’s letter, we discuss the heightened geopolitical tensions, coordinated attacks and how growing demand across the defence sector can translate into stronger profitability and an increasingly favourable earnings outlook.
For further insights, read our in-depth sector report on growth, profitability and valuations here: https://finserve.se/wp-content/uploads/2026/10/Pricing-Structural-Growth-Finserve-Nordic.pdf
The month was marked by continued tense geopolitical conditions. At the same time, several portfolio companies announced positive developments, including new contract awards and expansions in production capacity. Overall, we continue to see encouraging progress in capacity expansion, revenue growth and earnings momentum.
An increasingly significant security challenge is the deepening cooperation between Russia, China, Iran and North Korea. Together, these countries are forming a more coordinated axis that poses a growing challenge to Western security. Several are pursuing their objectives through military aggression, cyberattacks, sabotage and influence operations. These activities are designed to weaken Western cohesion, stretch defence resources, disrupt supply chains and undermine societal resilience.
The hybrid threat against Europe is increasing through sabotage of the defense industry in Estonia and Bulgaria, assassination plots against American bomber assets in the United Kingdom, and murder threats against European defense industry leaders illustrate a growing threat that is still often handled as isolated incidents rather than parts of a broader hybrid threat against the West. We see a way to test NATO and challenge Article 5.
In Ukraine, Russia continued its large-scale missile and drone attacks, including strikes against energy infrastructure. During September, President Zelenskyy stated that Ukraine had reached an agreement to secure additional Patriot missiles and received US approval for licensed production. These developments are important ahead of the winter months, but they also highlight the global demand for, and shortage of, advanced air defence systems as multiple conflicts compete for the same resources.
The conflict involving Iran is exacerbating these challenges and placing further pressure on the availability of Western defence equipment. According to reports in September, the redeployment of US air defence assets to the Middle East has complicated Ukraine's access to Patriot missiles. These conflicts are therefore competing, at least in part, for the same limited resources, underscoring the substantial demand that we believe remains underestimated in defence sector valuations.
The defence sector's recent stock market underperformance has renewed the debate over how much of the ongoing defence buildup is already reflected in share prices. We believe that the outlook for profitability deserves greater attention in this discussion. European defence companies are expected to deliver average annual organic revenue growth of 11.8% between 2025 and 2030, while EBITA is projected to increase by 15.7% per year.[i] These forecasts suggest that earnings could grow significantly faster than revenues. As capacity utilisation improves and production runs become longer, fixed costs can be spread across a greater number of units, allowing a larger proportion of incremental revenue to translate into operating profit. At the same time, investments in new facilities and higher inventory levels tie up capital before production reaches full capacity. The speed at which companies move through this investment phase will be a key determinant of future returns.
The combination of higher volumes, improving profitability and sustained long-term demand underpins our positive outlook for the sector. Moreover, deliveries made today are expanding the installed base of defence systems that will require spare parts, maintenance and upgrades for many years to come. Earnings opportunities therefore extend well beyond the initial contracts. If companies deliver on expectations, historical sector valuation multiples may become a less relevant benchmark, as they largely reflect periods characterised by structurally lower growth.
We see investment opportunities where the share price does not fully reflect the potential for both higher and more sustained profits. In our view, the recent declines in share prices have created opportunities to increase exposure to the sector at attractive valuations. In our view Latest report on the sector we deepen the discussion about growth, profitability and valuation.
| September 2026 – Top performers | September 2026 – Bottom performers | ||
| Okta Inc. | 47% | RENK Group AG | -20% |
| Electro Optic Systems | 36% | CSG N.V. | -19% |
| CrowdStrike Holdings | 30% | Carpenter Technology | -18% |
| Satellogic Inc. | 21% | Hyundai Rotem | -18% |
| Astroscale Holdings | 21% | Planet Labs PBC | -17% |
Company-specific news
Hanwha AerospaceA signed its first defence contract with Croatia in September, worth EUR 411.8 million. The agreement covers 18 Chunmoo multiple-launch rocket systems, ammunition, support vehicles and training, with deliveries through 2030. Croatia thus becomes another European customer for Chunmoo, which has already been selected by Poland, Estonia and Norway, among others. [ii]
The company also took further steps in its US expansion. Its subsidiary Hanwha Defense USA announced plans to invest USD 2.2 billion in a munitions facility at Pine Bluff Arsenal in Arkansas. The facility will produce, among other items, propelling charges for 155 mm artillery. The planned investment shows how Hanwha combines export success with the development of local production capacity in key customer markets.[iii]
Electro Optic Systems announced a letter of intent with the Netherlands Ministry of Defence to further develop the Apollo laser into an operational weapon system for the country. The parties will also explore establishing production in the Netherlands with a Dutch-led European supply chain. Together with Hanwha’s planned investment in the US, this illustrates how local manufacturing capacity can become an important part of defence companies’ international expansion[iv]
Denmark joined Bittiums existing framework agreement with Finland and Sweden, allowing the three countries to purchase tactical communications solutions on common contractual terms. Bittium later signed a letter of intent with Safran Electronics & Defense to explore joint offerings for the French armed forces. These partnerships illustrate how the need for communications systems that operate seamlessly across national borders can open new markets for smaller technology suppliers.[v]
[i] RBC, European Defence, pp. 1, 14–15
[ii] Hanwha. Hanwha Aerospace to supply Chunmoo MRLS to Croatia (2026)
[iii] Hanwha. Hanwha Defense USA to locate munitions manufacturing campus at Pine Bluff Arsenal (2026)
[iv] EOS. EOS signs letter of intent with the Netherlands Ministry of Defence for High Energy Laser Weapon technology (2026)
[v] Bittium. Inside information: The Danish Defence Forces join the framework agreement signed by Bittium Corporation’s subsidiary Bittium Wireless Ltd. with the Finnish and Swedish Defence Forces (2026)
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