Shares of the largest non-nuclear submarine maker soared 78% in debut trading

German manufacturer of submarines and frigates Thyssenkrupp Marine Systems (TKMS) debuted on the stock exchange with sharp growth of quotations. In the course of the first trades they rose about twice as much as the opening price. Europe's largest steelmaker, Thyssenkrupp, has been struggling with the downturn in the industry for many years, and through the IPO of its division, it decided to capitalize on the defense boom in the EU.

Trading in TKMS shares in Frankfurt started on October 20 at €60 per share - well above forecasts. The starting price, automatically determined by the stock exchange, provided the shipyard with a capitalization of €3.8 billion. This immediately made TKMS one of the most expensive German defense companies. Analysts on average assumed that the valuation of TKMS after its spin-off from Thyssenkrupp would be in the range of €2.3-2.7 billion, Reuters reports. Citi predicted that the value of TKMS could be around €3.4 billion, The Wall Street Journal reported.

After the opening of trading, TKMS peaked at €106.58 per share - 78% above the starting price - and then fell below €90. At the same time, shares of parent Thyssenkrupp collapsed by almost 20%, and its capitalization fell to €6 billion - so investors reacted to the separation of a high-margin division, which in the future will go its own way, Handelsblatt writes.

The rally in TKMS shares is due to "a general mania for defense stocks," MWB Research analyst Jens-Peter Rieck said in a Bloomberg statement. He gave TKMS shares a Buy rating and a €100 target price. TKMS' debut was accompanied by an "obviously supportive opening price," which shows that the company is a "must-have in the European defense sector for the next decade," said Pierre-Olivier Essig, head of research at Advanced Investment Research SL

ThyssenKrupp shareholders in August approved the spin-off of the shipyard, whose synergies with other divisions had been limited, into a separate company for more efficient growth. Thyssenkrupp announced that shareholders would receive one TKMS share for every 20 shares in the parent company, while Thyssenkrupp itself would retain a 51% stake. However, neither Thyssenkrupp nor TKMS named the expected valuation of the business before the auction, WSJ notes.

TKMS is based on the Kiel shipyard HDW (Howaldtswerke-Deutsche Werft), which dates back to 1838. Since 2005, the shipyard has been owned by Thyssenkrupp. According to TKMS's own data, it is the world market leader in non-nuclear submarines and also builds frigates and corvettes. In addition to production sites and facilities in Germany, the shipyard also has a site in Brazil.

The submarine manufacturer's order portfolio is overflowing, Handelsblatt says. In December, the Bundestag budget committee approved the construction of four more 212CD class submarines for the German Navy. A total of ten such boats have been ordered - six for Germany and four for Norway. This will keep the shipyard busy until the early 2040s, Handelsblatt reports. By mid-2025, TKMS had an order backlog of €18.6 billion.

TKMS is now competing for a major defense order to build eight to twelve non-nuclear submarines for Canada, Handelsblatt added. The competitor is a shipyard from South Korea.

TKMS's listing came amid a rally in defense stocks: Bloomberg's European Defense index is up 80% this year, and securities of Germany's Rheinmetall have added 186%.

Rising arms spending and a rally in defense stocks are also attracting private companies to the public markets, the WSJ notes. Other European defense firms considering going public include arms maker Czechoslovak Group and Franco-German tank maker KNDS, which this fall announced plans for an IPO.

This article was AI-translated and verified by a human editor