Kongsberg Earnings: Strong Fundamentals; Softer Near-Term Profit Conversion

Key Morningstar Metrics for Kongsberg Gruppen

• Fair Value Estimate
  : NOK 329
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

What We Thought of Kongsberg Gruppen’s Earnings

Kongsberg reported a 31% increase in revenue year on year to NOK 10.4 billion, broadly in line with consensus. EBIT of NOK 1.67 billion and a 16.1% margin missed the 17% the market expected. Order intake of NOK 17.1 billion lifted the backlog to a record NOK 158 billion. Guidance was reaffirmed.

Why it matters: Shares fell about 7% as the quarter provided less evidence of near-term earnings and order conversion than investors expected. While margins and order intake disappointed, we see no sign of weaker demand, execution issues, or delayed programs.

• The 16.1% margin rose 190 basis points year on year but missed consensus with defense systems easing to 17.7% (from 19.6%) on Ukraine donation mix and Discovery easing to 15.3% on the facility move. Integration of the Zone 5 missile maker is expected to dilute group margin for 12-24 months before normalizing.
• Book/bill fell to 1.6 times from 2.9 times in the first quarter as defense systems’ intake was below consensus due to a record comparable. The USD 400 million Kuwait NASAMS award hasn’t been booked yet. We view this as normal lumpiness; the NOK 158 billion backlog and NATO pipeline underpin intake into 2027.

The bottom line: We maintain our NOK 329 fair value estimate. We expect European defense spending to shift from political commitments to procurement, supporting multiyear demand for missiles, integrated air defense, and autonomous systems.

• The firm is expanding beyond premium missiles into affordable mass, integrated air defense, counter-drone, subsea, and space, materially increasing its addressable market.
• We view the weaker margin profile as temporary, driven by project mix and investments to support growth. We expect margins to normalize by 2028 as procurement shifts to larger serial production programs and industrial expansion matures, improving operating leverage.