Morgan Stanley starts Renk coverage on defense backlog, order potential

Morgan Stanley kicked off research coverage of Renk Group with an equal-weight rating and a €50 price target. The bank estimates roughly 20% compound annual sales growth for the Vehicle Mobility Solutions division and 60%-80% revenue visibility through 2030, but because earnings forecasts are broadly in line with consensus, any re-rating hinges on new order flow and improved clarity over German procurement.

The €50 target suggests approximately 15% potential upside from Renk’s September 3, 2026 closing price of €43.58.

The valuation objective combines a discounted cash flow-derived €51 per share, based on an 8.7% weighted average cost of capital and 3% terminal growth, with a sum-of-the-parts value of €49 per share, which reflects roughly 13 times estimated 2028 EV/EBIT and around 17 times estimated 2028 price-to-earnings.

Morgan Stanley’s proprietary analysis of Renk’s backlog identifies roughly €2.2 billion of contracted original-equipment orders in the VMS division, led by the Leopard 2A8, K2, Ajax and Lynx programmes, plus an additional €3.5 billion to €4 billion of potential pipeline opportunities.

The broker observes that about 85% of Renk’s installed fleet is more than 20 years old, and the €3.5 billion to €4 billion of identified original equipment could ultimately drive €12 billion to €16 billion in lifetime aftermarket revenue.

Morgan Stanley’s capacity modelling points to transmission output more than doubling, with aftermarket sales expected to approach roughly 45% of total VMS revenue by 2030.

Renk’s European fleet exposure as a share of contract value has climbed from about 60% before the conflict to approximately 75% after the conflict, according to the bank, helped by roughly 70% depletion across European fleets, which Morgan Stanley characterises as fuelling an original-equipment supercycle.

Morgan Stanley notes that Renk shares have de-rated sharply, moving from an average premium of roughly 13% to its peer group around the company's IPO to a discount of approximately 8% today, alongside a multiple contraction of roughly 44% over the past year.

The bank views this de-rating as mainly a sentiment shift rather than an earnings downgrade, reflecting investor concerns about Renk’s heavy exposure to land-based defense at a time when spending is expanding into other domains, as well as uncertainty around the timing and allocation of German procurement.

Morgan Stanley says it would become more positive on clearer visibility over German land procurement, additional firm orders and upward earnings revisions. It flags potential catalysts including the German 2027 budget due in autumn 2026, Renk’s nine-month 2026 results on November 5, the expected closing of the David Brown Defence acquisition in the fourth quarter of 2026, and possible new Leopard, Boxer-Arminius, K2 and Lynx orders during 2026-27.

In Morgan Stanley’s bull case, Renk is worth €73 per share, assuming German procurement uncertainty resolves and land allocations translate into faster order conversion and earnings upgrades.

The firm’s bear case puts fair value at €35 per share, based on slower conversion of defense budgets into orders, particularly across German land programmes.

Morgan Stanley’s estimates show Renk generating sales of €1.57 billion in 2026, €1.84 billion in 2027 and €2.17 billion in 2028, with corresponding EBIT of €280 million, €345 million and €423 million.