European submarines are too exposed

About the author

I am an investor from Central Europe, focusing on the European defense industry, suppliers of parts, chemicals, energy, construction, and distribution networks; in short, I deal with everything related to the rearmament of the European part of NATO.

Why pay attention to European defense companies?

Since the war in Ukraine (2022), European defense companies have significantly outperformed American defense companies, which are huge and have limited growth potential. They are also dramatically outperforming technology companies that are spending money on large language models and data centers, but their return on investment is still far off. In contrast, European defense companies are raking in money, expanding operations, and winning contracts worth billions of euros.

Company overview

Germany's ThyssenKrupp Marine Systems (TKMS), (DE000TKMS001) is part of the parent company Thyssenkrupp (DE0007500001). The parent company is primarily a steel mill and manufacturer of special components. Unfortunately, due to imports of cheap steel from China and environmental requirements in the EU, it has low margins and its overall situation is problematic. The management of the parent company decided to gradually sell off the company, which consists of the Automotive Technology, Decarbon Technologies, Materials Services, Steel Europe, and Marine Systems divisions, and to retain only shares in these companies, which led to the TKMS division being listed on the stock exchange as an independent company. Furthermore, the entire Steel Europe division (100%) is being sold to the Indian steelworks Jindal Steel International.

TKMS specializes in the production of submarines and warships. It is a leader in the field of diesel-electric submarines with AIP (Air-Independent Propulsion), which allows submarines to operate underwater for long periods of time without having to surface for air. It is also the largest exporter of submarines in Europe, with approximately half of its revenue coming from Europe and 25% from Germany, making it a national champion in the field of non-nuclear submarines and medium-sized combat ships.

Start of trading

TKMS began trading on the Frankfurt Stock Exchange in Germany on October 20, 2025. This was not a traditional IPO, but rather a spin-off, whereby shareholders of the parent company Thyssenkrupp received one TKMS share for every 20 shares held. After this event, Thyssenkrupp retained a 51% stake in TKMS, with the parent company's value subsequently falling by 20% due to the spin-off of the TKMS division. Trading in TKMS began at EUR 70 and soon reached over EUR 100. It was to be expected that the listing of TKMS on the stock exchange would generate a lot of interest, perhaps even excessive interest. Within five trading days, the price fell to EUR 75. Personally, I think that is still a lot for a start.

What is the real value?

Before going public, the price of TKMS was not known in advance – it was only determined during the initial auction. Analysts estimated the value of TKMS at EUR 2.5 billion. The number of shares issued is

63,523,647, so 2,500,000,000/63,523,647 = EUR 39 as the initial price. After a week of trading, the value was EUR 4.8 billion, so 4,800,000,000/63,523,647 = EUR 75. Let's compare the price of TKMS with that of Italian ship and submarine manufacturer Fincantieri, valued at EUR 7.46 billion with a share price of EUR 23. Comparisons with other companies such as BAE or Saab are complicated because they do not only manufacture ships and submarines, but also other equipment. If we compare TKMS with RENK, which manufactures steel parts for tanks, it has a value of EUR 6.8 billion with a price of EUR 65. Of course, these comparisons are only indicative, as it depends on how many shares you divide the company's value by.

A premium for exclusivity?

It can be said that TKMS has a dominant position in Europe, there is an arms boom underway, and the launch of a new arms company on the market is attractive; not many arms companies manufacture submarines. However, it is also necessary to bear in mind several limitations of this company – low margins – TKMS wants to reach an 8% margin in 2028, while, for example, the Rheinmetall arms manufacturer already has a 15% margin in 2025. Unlike arms manufacturers, which can produce ammunition relatively flexibly, for example, the production of ships and submarines takes many months; it is a large project, risky and dependent on ongoing payments; production is also difficult to expand because submarines must be built in docks and not just anywhere. TKMS's sales are expected to grow by 11%, which is relatively little. Personally, I would see a realistic purchase price of around EUR 60. However, TKMS will certainly grow because it has a monopoly position in the market and an interesting story, but I fear that after a few months, some investors may be disappointed by its lower performance compared to traditional arms manufacturers. I estimate the future price in 2025 to be EUR 60-85, and EUR 120 in 2026. The main thing is that when Rheinmetall grows, other arms manufacturers grow too.