Saab: Big headline, small numbers for now

Saab has announced a Memorandum of Understanding (MoU) with the Joint Stock Company "Ukrainian Defense Industry" (JSC UDI) to collaborate on aviation and airborne surveillance. Signed at the Munich Security Conference, the MoU aims to support Ukraine’s defense capabilities by leveraging Saab’s aeronautics and sensor expertise. While the partnership is a meaningful strategic milestone, we view it as long-term option value rather than a near-term financial driver. This announcement does not lead to changes in our current estimates.

Strategic Validation of the Sovereignty Thesis

Ukraine’s decision to partner with Saab on aviation and surveillance is a proof point for Saab’s European sovereignty positioning. Despite access to multiple US systems through military aid, Ukraine’s choice to pursue a separate collaboration with Saab supports the case for ITAR-free (International Traffic in Arms Regulations) European defense solutions. We believe this could set a precedent for other European NATO members. If a country facing an existential threat prioritizes strategic autonomy in its procurement choices, it strengthens the perceived regulatory moat for Saab’s platforms across the continent.

Long-Term Option Value in Post-Conflict Reconstruction

The MoU positions Saab as a preferred partner for Ukraine’s eventual post conflict reconstruction. The World Bank estimates total reconstruction costs at ~500 BEUR over ten years. If ~10-15% of that total is defense reconstruction, that implies ~50-75 BEUR. If ~25-35% of the defense reconstruction budget is allocated to air force and surveillance, Saab’s potential addressable market in those domains in Ukraine could be ~13-26 BEUR. If Saab captures ~30-50% of that pool, potential incremental orders could be ~4-13 BEUR.

In a hypothetical base-case that includes NATO or EU integration, this could translate into combined order intake of ~2.1-3.8 BEUR for Gripen fighters and GlobalEye systems, with deliveries starting in 2030-33 and potentially stretching beyond that. This could lead to an increase of 2-6% to our revenue estimates those years. However, these prospects remain highly uncertain and are, at best, very unlikely to affect revenue before 2028. As long as the war continues, Sweden has limited scope to transfer fighter technology to Ukraine, given the risk for the aggressor to seize the technology.

A theoretical potential set of outcomes

Note: the prices are theoretical but align with historical order values

Near-Term Execution Risks and Management Bandwidth

Our view is that, while the partnership is strategically sound and could be highly lucrative for Saab, it also introduces execution risks that warrant caution. These include potential pressure to transfer sensitive technology and payment uncertainty tied to the future path of Western military aid. The geopolitical and contractual complexity would also consume management attention at a time when Saab is already focused on a major production ramp-up to convert its record 274.5 BSEK backlog. Any time spent structuring and negotiating these frameworks has an opportunity cost versus executing existing high-value contracts, such as Gripen for Colombia and GlobalEye for France.

Valuation Reflects Geopolitical Hype

Given how the sector has traded on headlines since 2022, we expect an initial positive reaction, but likely a limited one. Any financial impact is long-dated, if it materializes at all. We maintain our view that Saab’s valuation of 44-36x in 2026-27 remains a bit demanding, given that these multiples imply near flawless execution of the current backlog. While the MoU adds meaningful option value, it does not change our base case fundamentals today. Also, a back-of-the-envelope calculation suggests that the share price implication for our hypothetical base case could be ~5-15 SEK per share. However, even if we add that to our current target price the result remains below the current share price.