Q2 output growth accelerated. Total output rose 31% yoy to € 10.3m (eNuW: € 9.5m), following 11% yoy growth in Q1. Sales increased 4% yoy to € 6.2m; the difference reflects a build-up of work in progress ahead of delivery and customer acceptance in H2. Importantly, SMAG obtained its first industrial customer approval on a TaWAN system at the end of June. These milestones show the production ramp progressing well overall, in our view.
Adj. EBIT amounted to € 0.2m (Q2 25: € 1.1m), corresponding to a 1.9% margin. Earnings reflect investment in staff, with headcount up 47% yoy, and production capacity ahead of higher delivery volumes. Continued work on lower-margin legacy projects also weighed on profitability. Project mix is seen to improve as higher-margin programmes gain weight and lower-margin legacy work gradually winds down. Favourable H2 seasonality should lift deliveries and customer acceptances, and the higher volumes are expected to generate operating leverage. Together, these effects look set to support a marked margin recovery in H2.
Order conversion from frame-to-fixed is gaining pace. Yesterday, SMAG signed a € 70m contract with a European defence prime, moving the volume from frame to fixed backlog. The contract covers deliveries with revenue recognition planned from 2028 to 2035, strengthening visibility beyond the current production ramp. Fixed backlog had already risen c. 30% from € 140m at YE25 to € 182m at end-June, supported by a € 34m order for deployment on NATO's eastern flank. A further € 6m service order signed this week adds evidence of demand from the installed base. Total backlog remained at c. € 1.4bn at end-June.
Further order catalysts lie ahead. The company already pointed to a possible € 150-200m air defence programme order, with signing around the turn of the year. Moreover, we expect the optional TaWAN volumes to be called-off later in 2027.
SMAG reiterated its FY26 guidance of € 55-60m total output and a 19-21% adj. EBIT margin. Achieving it requires a pronounced H2 ramp, consistent with the project-driven timing of deliveries and customer acceptances. TaWAN, the eastern-flank programme and better utilisation of the expanded production base are set to drive that step-up. Beyond 2026, the planned expansion of the Salzgitter facility should create room for materially higher volumes.
Accelerating output points to progress in executing existing orders and recent contract signings increase the fixed backlog and strengthen visibility on future growth. At c. 12x 2027e earnings (eNuW), the shares offer an attractive risk/reward. BUY, PT € 47, based on DCF.
ISIN: DE000A42FR12
