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The way forward: From rearmament to profitable growth
The Finserve Global Defence & Security Fund fell 1.35 percent in September. In thios monthly letter, we discuss the tense geopolitical situation, coordinated attacks, and how the growing demand in the defense sector can be translated into higher profitability and improved conditions for positive earnings development.
The month was marked by continued tense geopolitical conditions. At the same time, several portfolio companies presented positive news regarding new orders and expanded production capacity. Overall, we see positive developments in capacity, revenue growth and profit growth.
An increasingly clear security policy challenge is the deepening cooperation between Russia, China, Iran, and North Korea. Together, these states constitute an increasingly interconnected axis that challenges the security of the Western world and acts through military aggression, cyberattacks, sabotage, and influence operations. The goal is to weaken Western cohesion, strain defense resources, disrupt supply chains, and undermine the resilience of society.
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’s extensive drone and robot attacks continued against energy infrastructure among other things. In September, President Zelenskyy stated that Ukraine had reached an agreement on additional Patriot robots and received US approval for license production. These messages are important ahead of winter, but they also illustrate the global demand and shortage of advanced air defense systems as several conflicts compete for the same resources.
The war over Iran reinforces this problem and the availability of Western defense materiel. According to reports in September, the reallocation of American air defense resources to the Middle East has hampered Ukraine’s access to Patriot robots. The conflicts are therefore partly competing for the same limited resources and highlight the great demand that we believe is underestimated when valuing defense companies.
The weaker stock performance of the defense sector in recent times has brought up the question of how much of the modernization already reflects in the stock prices. We believe that the profitability development deserves greater attention in that discussion. For European defense companies, organic sales are expected to grow by an average of 11.8 percent per year during the period 2025–2030, while EBITA is expected to increase by 15.7 percent per year.[i] The forecasts therefore indicate that profits could grow significantly faster than revenues. As factories are utilized more efficiently and production runs become longer, fixed costs are spread across more units. A larger portion of each new sales revenue can then remain as profit. Investments in new facilities and larger warehouses simultaneously bind capital before production reaches full capacity. How quickly companies get through this phase becomes crucial.
It is the combination of higher volumes, improved profitability and sustained demand that underlies our positive outlook for the sector. Today’s deliveries also build a larger base of defense systems that will require spare parts, maintenance and upgrades for many years to come. The earning potential therefore extends well beyond the original orders. If companies meet expectations, the sector’s historical valuation multiples become a less obvious benchmark because they reflect periods of generally lower growth.
We see investment opportunities where the share price does not fully reflect the potential for both higher and more sustained earnings. In our opinion, the recent declines in share prices have created opportunities to increase exposure to the sector at attractive valuations. In our latest report on the sector, we deepen the reasoning on growth, profitability and valuation. Read the full report here: LINK
| 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
In September, Hanwha Aerospace signed its first defense contract with Croatia, worth 411.8 million euros. The agreement covers 18 Chunmoo missile artillery systems, ammunition, support vehicles, and training, with deliveries until 2030. Croatia thus becomes another European customer for Chunmoo, which has previously been selected by countries such as Poland, Estonia, and Norway.[ii]
At the same time, the company took further steps in its American expansion. Its subsidiary Hanwha Defense USA announced plans to invest $2.2 billion in a munitions facility at the Pine Bluff Arsenal in Arkansas. The facility will, among other things, manufacture propellant for 155 mm artillery. The planned investment demonstrates how Hanwha combines export success with building up local production capacity in key customer markets.[iii]
Electro Optic Systems The companies announced a letter of intent with the Dutch Ministry of Defense to further develop the Apollo laser into an operational weapon system for the country. The parties will also explore the possibility of establishing production in the Netherlands with a Dutch-led European supply chain. Together with Hanwha’s planned investment in the United States, this illustrates how local manufacturing capacity can become an important part of defense companies’ international expansion.[iv]
Denmark joined the Bittiums Existing framework agreements with Finland and Sweden allow the three countries to purchase tactical communication solutions on common contractual terms. Later, Bittium signed a letter of intent with Safran Electronics & Defense to explore joint offers to the French defense sector. These collaborations illustrate how the need for communication systems that work together across national borders can open up new markets for smaller technology providers.[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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