Defence companies’ revenues and earnings expected to grow significantly faster than defence budgets
14 OCT, 2026
Higher defence budgets are only the starting point for the growth outlook of the defence industry. In a new market report, the investment team behind Finserve Global Defence & Security Fund highlights that the market may be underestimating the revenue and earnings growth for defence companies.
Procurement of defence materiel, the part of defence budgets allocated to defence equipment and products, is growing faster than overall defence budgets as it captures an increasing share of total expenditure. As a result, larger production volumes and higher capacity utilisation could allow defence companies’ revenues and particularly earnings, to grow materially faster than the underlying defence budgets.
European rearmament has moved from political ambition to concrete orders and expanding order books. RBC Capital Markets estimates that defence expenditure among European NATO countries could grow by approximately 8% annually through 2030. At the same time, procurement of defence materiel and equipment, the part of the budget most directly addressable by the defence industry, is expected to grow by approximately 16% per year.¹ The investment team believes this distinction is central to understanding the sector’s long-term earnings potential and its implications for valuation.
It is not enough to look at how quickly a defence budget is growing. For defence companies, what matters most is how that budget is allocated and which segments are prioritised. As an increasing share is directed towards materiel, services and equipment, companies’ addressable market can grow significantly faster than the overall budget.
Joakim Agerback, Partner and Lead Portfolio Manager of Finserve Global Defence and Security Fund
From more orders to higher volumes and stronger earnings
The next phase is about converting record order books into production. Finserve’s analysis of European defence companies indicates that earnings growth is expected to exceed revenue growth across a significant part of the sector. Higher volumes, improved capacity utilisation, productivity gains and a more favourable product mix can together create meaningful operating leverage.
Deutsche Bank estimates, also point to rising operating margins through 2030 for the European defence companies included in Finserve’s comparison.² The estimates further indicate that earnings growth is expected to outpace revenue growth. This supports Finserve’s view that increasing production can improve industrial scale and drive higher revenues.
We see a transition from an order-driven phase to one increasingly driven by volumes and earnings. As factories, labour and supply chains are utilised more efficiently, the incremental unit can in many cases become more profitable than the previous one. This is where we see the potential for earnings to grow faster than revenues.
Fredrik Ljungdahl, Defence Analyst at Finserve Nordic
Capacity and cash flow are the next test
Capacity expansion requires capital and is not without challenges. New production lines, inventories and more resilient supply chains can weigh on cash flow before deliveries fully ramp up.
Deutsche Bank forecasts, however, point to stronger cash-flow profiles through 2030 for several of the larger European defence companies.³ For Finserve’s investment team, cash conversion is therefore an important indicator of the quality of earnings growth.
The correction creates opportunities
After several years of strong share-price performance, valuation has been one of the key concerns surrounding the sector. Finserve believes that the recent share-price correction and lower valuation multiples, occurring while earnings expectations have remained strong, have improved the sector’s forward-looking risk-return profile.
Historical multiples are a weak anchor if the industry is entering a period of higher growth, longer order visibility and improved profitability. The relevant question is not what the sector used to trade at, but what level of growth, cash-flow generation and earnings duration is actually discounted in today’s prices.
Gustaf Hagerud, CIO of Finserve Nordic and member of the Fund’s Advisory Board
The investment team therefore believes that the next phase for defence companies will increasingly be determined by production, margins, cash flow and valuation, rather than by further broad-based multiple expansion.
Read the full market report here.
For further information, please contact:
Niclas Gutenbrink, Head of Sales Iberia
+46 79 102 15 52
+34 910 19 41 05
Sources: ¹ RBC Capital Markets, European Defence - Initiation, August 2026. ² Deutsche Bank Research, 21 September 2026. ³ Deutsche Bank Research, 21 September 2026.
