Investing in Europe's defence industry : Saab ABHello,
Saab AB (publ) provides products, services, and solutions for military defence, aviation, and civil security markets Internationally. The company operates through Aeronautics, Dynamics, Surveillance, Kockums (shipyard), and Combitech (technical consulting) segments.
The company develops military aviation technology, as well as conducts studies on manned and unmanned aircraft. It also provides ground combat weapons, missile systems, torpedoes (self-propelled underwater missiles), unmanned underwater vehicles, training and simulation systems, and signature management systems for armed forces; and niche products for the civil and defence market, such as underwater vehicles for the offshore industry.
Europe is currently undergoing its most significant strengthening of total defence since the Cold War and Sweden is not being left behind. In response to a shifting international landscape, European countries are rapidly rearming, adding substantial investments into both its civil and military defences. By 2030, In Sweden alone, defence expenditures are expected to receive over SEK 200 billion (18 million euros). Military spending is projected to hit 2.6% of Sweden’s GDP by 2028. A robust Swedish total defence doesn’t just bolster Sweden’s own security—it also reinforces NATO’s and in place Europe’s defence systems as well. As Europe rearms itself, it will be looking at Sweden’s top arms manufacturer to build on stock for equipments. According to a Sweden's security police (SAPO) report released in March 2025, Russia poses the greatest threat to Sweden due to its aggressive attitude towards the West. Sweden became a Nato member last year (March 7, 2024), seeing it as the best guarantee against Russia.
These risks provide an opportunity for Sweden’s top defence manufacturing contractors Saab AB. Saab AB recognized for designing and manufacturing military aircrafts, like the Saab JAS 39 Gripen, a highly regarded multirole fighter jet. The Gripen rivals the F-35 in capability, and though it lacks stealth, it cleverly jams enemy radar to stay off the grid. Plus, it’s a budget-friendly alternative to the pricier F-35s. It is very likely that European countries will prefer the JAS 39 Gripen over the US made F-35’s due to the current political environment and recent news that the US had an ability to apply a kill switch on European F-35’s. The company also manufactures air, land and sea artilleries. In August 2024, The U.S. Army awarded Saab an Indefinite Delivery, Indefinite Quantity (IDIQ) contract, which allows the U.S. Army to place orders for up to $494 million over five years for the XM919 Individual Assault Munition (IAM) programme. On the customer side, Saab has a global customer base, with notable presence in countries like Sweden, Czech Republic, Hungary, South Africa, Thailand, Brazil, Canada, United States of America and the UK. Just six days ago (March 2025) Saab received a contract modification award from the U.S. Marine Corps for additional Marine Corps Training Instrumentation Systems (MCTIS) equipment. The order value for this award is USD $37 million (SEK 375 million) with deliveries taking place from 2025 to 2027. Separately, Saab has also signed a memorandum of understanding with Radionix (a Ukrainian defence company), on bolstering Ukraine’s capabilities. This partnership will zero in on developing and maintaining sensors and defence electronic systems. This covered Ukraine when the United States could not provide military intelligence to Ukraine. Saab’s equipment has been battle-tested and proven effective, making it a preferred choice for advanced military forces worldwide.
The Europe, EU efforts to boost defence through resource pooling and coordinated procurement are creating great ground for Saab’s growth. The company is well-positioned to meet rising demand for its support weapons, tank attack artillery, sensor systems, airborne early warning, and surface radar systems. As European nations restock their military arsenals, Saab’s prospects look even brighter.
Canada is a Saab customer—and it’s rethinking its defence strategy after it had canceled the Saab contract and gave it to Lockheed Martin. After a recent tariff spat with the United States, Canada’s new prime minister, Mark Carney, signalled a shift. “It’s clear that our security relationship is too focused on the United States. We must diversify,” he told reporters during a visit to London. With Canada spending roughly 80% of its defence budget on American weapons, the push for alternatives could open doors for Saab since they have worked together before.
Globally, escalating tensions—especially between the West, China, and Russia—are driving defence budgets upward, particularly in Europe and the Asia-Pacific. Spurred by the Russia-Ukraine war, nearly every European country plan to raise defence spending to at least 2% of GDP in the coming years. For Saab, this spells long-term opportunity, letting it capitalize on its geographic reach and diverse product line-up. The EU’s executive arm expects around 650 billion euros ($702 billion) to be unlocked through this initiative over the next four years. Even if only a small percentage (5%) of that trickles down to Saab each year it would more than double the company’s current revenue. This fundamentals, geo-politics and technical analysis makes the stock a strong buy for the medium/long term. A correction would provide better opportunities for entry.
Rationale for
Saab is well positioned to capitalize on growth in European defence budgets in the next five years.
The company is an international leader in antitank weapons, radar, and electronic warfare, allowing it to take full advantage of the surge in demand
Saab is the largest defence contractor for Sweden and among the biggest in Europe. It is set to benefit from the country's admission to NATO and the increase in its defence budget to SEK 300 billion between 2023 and 2025.
Risks to consider
Saab's sales depend on military funding, where contracts are awarded in an inherently political and uncertain process.
Future growth partially targets countries that are not included in European and NATO alliances, with potential geopolitical risks and shifting alliances precluding company deliveries.
A persistent valuation overhang due to increased ESG pressure on investment mandates will weigh on global defence shares even as earnings grow.
Next earnings report date: April 25, 2025
PE ratio: 50.30x
Industry average: The industry is trading at a PE ratio of 54.3x
Market cap: 207.8B SEK
