KBGGY - Kongsberg: Update After Significant Outperformance

2025-04-06 16:16:09 ET

Summary

• Kongsberg Gruppen ASA has shown strong performance with significant revenue growth and a solid backlog, but its current P/E ratio of 50x is unsustainable.
• Despite excellent FY 2024 results and a doubled dividend, I maintain a conservative "Hold" rating due to overvaluation and expected EPS growth decline.
• The defense sector's geopolitical tailwinds support Kongsberg, but the market overreaction has inflated its valuation beyond justifiable levels.
• I set a price target of 950 NOK/share, anticipating a correction in 2025, making Kongsberg a potential future investment but not now.

Dear readers/followers,

You may recall my initial work on Kongsberg Gruppen ASA, one of Norway's primary defense contractors and a very qualitative business and company to own, at least if you bought it at the right price. Throughout the last 2-3 years, I've made the mistake a few times that I underestimate just how high these defense firms might end up going, despite them already being fundamentally overvalued when I cover them.

Kongsberg Gruppen was, unfortunately, no different. I came in with my first article in early January, prior to FY results. Then I rated it a "Hold" and gave it an 800 NOK price target - and the company kept climbing. The company has significantly outperformed the market in a way that made me wish I had invested, and not a little, in the company. But I still argue that it would have been quite impossible for me to forecast or to see how the company would develop from there....

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