Tanks slowly pull CSG out of valuation hell

CSG NV

07/08/2026 11:28

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Pierre Briancon
BERLIN, Aug 7 (Reuters Breakingviews) - The listing of CSG CSG.AS in January was one investors wish they could forget. The Czech arms maker’s stock has since sunk 45% even as the overall European defence sector remained stable, as measured by the Stoxx Europe Aerospace and Defence Index. However, CSG’s performance in the first half of the year, and a business that is gradually become less dependent on making bullets and shells, could slowly pull it out of its valuation hell.
A reliance on making bullets for Ukraine has been one of the big worries facing shareholders in CSG. While ammunition is still its core business, it’s not stopping the group run by CEO Michal Strnad from diversifying. Its fast-growing, so-called land systems business, which includes tanks and trucks, saw revenue double in the first half of the year, and accounted for some 17% of CSG’s €3.3 billion of revenue in that period. That division also makes up most of its order backlog, and will continue to grow its share of the overall business.
CSG is also looking less dependent on Ukraine, with NATO countries making up some 69% of revenue in the first six months. That suggests it is able to take advantage of booming defence budgets across the region, as countries pledged to raise military spending to 3.5% of output.
CSG seems confident it can meet its bullish forecast of growing revenue by a “mid-teens” percent annual rate over the medium term. Assume 15% growth and revenue would near €12 billion in 2030. At the lower end of the group’s margin forecast of 26%, CSG would then book EBIT of a little over €3 billion. According to Visible Alpha, defence competitors on average are worth 10 times operating profit in that year. This suggests a potential valuation at around €30 billion - or a market capitalisation of €27 billion when stripped of debt. That compares with a mere €19 billion market capitalisation on Friday.
Many things however could happen on the way to market nirvana. European leaders may get cold feet on defence spending as pro-Russian far-right parties gain influence in France and Germany. That would lead to a tougher competitive landscape, with Europe’s contractors fighting harder for less public procurement money. Meanwhile Strnad’s M&A appetite could also lead to risky deals, and his 85% ownership raises fears that any dissenting investor voices would not be taken into account.
Still, CSG’s steep discount is getting harder to justify. It’s currently worth just 12 times 2026 EBIT, some 46% below Rheinmetall RHMG.DE, despite the latter’s stock having fallen nearly as much as CSG’s since January. The German group has learned the consequences of being too dependent on its government, and is yet to show the benefits of its diversification into maritime defence. Strnad’s bet on a diverse client base and new business lines should help him mend fences with jittery investors.
Follow Pierre Briancon on Bluesky and LinkedIn.
     
CONTEXT NEWS
Czech Republic-based defence firm CSG reported half-year revenue ‌above market expectations on August 7, driven by strong demand for ammunition and a ramp-up in its land systems business.
The company's revenue came in at €3.3 billion, up just over 17% from a year earlier and ​beating the €3.14 billion expected by analysts in a company-compiled consensus.

(Editing by Neil Unmack; Production by Varun H K and Streisand Neto)
((For previous columns by the author, Reuters customers can click on BRIANCON/pierre.briancon@thomsonreuters.com))