JPMorgan is recommending that investors take advantage of recent declines in European defence equities, arguing the pullback has opened a compelling entry point across the sector and especially for one company.
The bank noted that, since the start of the U.S./Israel-Iran conflict, European defence shares have slipped on average about 8%. CSG Nv (AS:CSG) has been hit harder, falling around 19% over the same span.
Analyst David Perry attributed the recent weakness to several market dynamics: investor de-grossing, worries that rising government debt could crowd out defence spending, and heightened scrutiny of execution risks at companies with rapid growth profiles. He cautioned, however, that those concerns do not negate the sector’s underlying investment case.
"Whilst all of these explanations/concerns are valid we would argue that the geopolitical situation is the most fragile it has been in our 28 years covering the A&D sector," Perry wrote in a note circulated on Friday. He highlighted three structural factors supporting higher defence spending: multiple active conflicts, weakening international institutions, and decades of underinvestment across Europe that may take a decade or more to reverse.
Perry also downplayed the debate over longer-cycle defence businesses such as aircraft and warship builders versus shorter-cycle suppliers like armoured vehicle and ammunition manufacturers, calling that discussion mostly noise. "All Defense stocks look attractive; the long vs. short cycle debate is noise," he wrote, adding that the current spending supercycle should benefit virtually every European defence company.
Why CSG stands out
JPMorgan highlighted Czech defence group CSG as an especially compelling investment opportunity. The bank noted CSG’s 2025 results beat its forecasts: sales were about 5% ahead, adjusted EBIT 4% ahead and net income roughly 2% above JPMorgan’s estimates.
CSG also reaffirmed its 2026 and medium-term guidance while growing its total order backlog and pipeline from c32 billion to c42 billion. JPMorgan said nearly all of that expansion is tied to potential new armoured vehicle orders. Perry said CSG declined to provide further detail on the potential vehicle orders and suggested that more transparency on the order backlog and pipeline could be beneficial for the share price.
On leverage, JPMorgan described CSG’s guidance as conservative. The company has guided for net debt-to-EBITDA to remain below 1.5x by end-2026; JPMorgan instead models a ratio nearer 0.7x. That estimate takes into account the c750 million raised at IPO and projected 2026 free cash flow of c800-900 million.
JPMorgan carries an Overweight rating on CSG and assigns a December 2027 price target of c40, which the bank says implies roughly 57% upside from current levels.
Bottom line
Perry concluded that nearly all European defence names have meaningful upside following the recent pullback, but he singled out CSG as particularly attractive given its recent results, enlarged backlog and what JPMorgan views as conservative leverage guidance.