TKMS enters Europe’s defense boom with Frankfurt IPO

TKMSA German warship builder that has spun off from the parent group Thyssenkrupp“Prudent, margin-oriented growth” is the plan to capitalize on an expected rise in Europe’s defense spending after debuting on Frankfurt’s stock exchange on Monday.

An initial public offering saw TKMS launch at around 60 euros ($70) per share — giving it a market value of around 3.8 billion euros ($4.4 billion) — amid strong demand from investors. Industrial engineering giant Thyssenkrupp will retain a 51% stake in the company after the offer.

The company, known as Thyssenkrupp Marine Services, builds both submarines and surface vessels, as well as electronics and software technology, which TKMS CEO Oliver Burkhard calls the company’s “jewel in the chest.”

This includes sonar equipment and some autonomous equipment, which are critical in so-called ‘powerful domain’ operations “which are the next big thing in military warfare,” Burkhardt told CNBC’s “Europe Early Edition” on Monday.

The IPO will enable the company to raise capital and increase capacity, and will increase demand for strong defense capabilities in Europe in the coming decades.

The US has 71 submarines, while Russia has approximately 64. Germany has only six and has ordered six more submarines.

Burkhardt said TKMS has an order backlog of 18.6 billion euros, meaning the company is likely to be at full capacity until 2040, given that it typically takes 5 to 15 years to build a submarine.

TKMS has doubled its capacity in recent years, and now has two shipyards where it can build state-of-the-art submarines, which can stay underwater for weeks at a time.

“With the capacity we have, we can certainly build our order book and we can also take other orders,” Burkhardt said, adding that the firm is targeting “prudent, margin-oriented growth”.

The company benefits from a “robust” supply chain, about 90% of which is located in Europe, mostly in Germany, he said.

Shares of Thyssenkrupp were initially 7.3% higher when the trading session closed on Monday. Stocks The Europe aerospace and defense index rose nearly 2.7%, with the battle tank parts maker color Off 6.7% higher, the defense technology firm Hensault increasing by almost 7.9%, and Rheinmetall Settling on an increase of 5.9%.

Gareth McCartney, Global Co-Head of Equity Capital Markets UBSsaid TKMS’s public debut comes at a time when investors are sitting on significant liquidity and has shown strong appetite for IPOs in the region.

McCartney told CNBC’s “Europe Early Edition” on Monday, “We now have a core of both defense and infrastructure in the last few months that international investors are looking for when they look to invest in Europe.”