Military Backlog Maxxing
PoW #33 | Riding the NATO Supercycle with an 18% EBIT Margin, 29% ROE, and Net Cash
This sort of play may have looked interesting and perhaps even hyped a few months ago when military budgets were all the rage. I’m not sure why it disappeared from the map since then, but the mispricing is definitely there today.
We are looking at a massive, guaranteed backlog that is a direct consequence of the Trump-induced military budget bumps across NATO countries.
Plus, because these guys primarily service central Europe, their outlook is even better given how Germany is now completely obsessed with rebuilding its military from the ground up (sorry Germans, but historically, perhaps, not the best thing).
You guys know how I like my military parts manufacturing monopolies, and this one is no exception.
They have an impressive backlog, and to put things into perspective, their major order (yes, a single order) is roughly 85% of their entire revenue for 2025.
The remaining contracts on the books (guaranteed) push their total backlog to roughly 135% of that annual revenue for 2025, so pretty much a massive runway of highly visible growth over the next couple of years.
Looking at it from within, the quality of the business is undeniable: a pretty healthy 18% EBIT margin, 100%+ FCF conversion, a pristine net cash position, a 16% ROA, and a massive 29% ROE.
These guys are looking like a compounding winner that the market has completely failed to discover.
As we now do every week for transparency and to provide full value, here is our list of Pick of the Week posts and their returns since publishing:
Equally weighted picks: +13.71%
Fund-allocated picks: +40.12%
At The Hermit, we hunt for unloved, mispriced small- and micro-caps that institutional screeners miss because of dirty data, and this asset-light, cash-generative engine is completely disguised as a sleepy legacy market anomaly.
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Pick of the Week. A curated series of high-conviction research on companies currently under our microscope. We screen for specific dislocations where the market has mispriced the balance sheet or earnings power.
The Selection Criteria:
Asset Arbitrage: Trading at a discount to tangible liquidation value.
Backlog Disconnect: Future contracted revenue ignored by the market.
Hidden Margins: Structural profitability masked by temporary noise or CAPEX cycles.
The Structure:
The Business: A concise operational overview.
The Dislocation: The specific structural reason the opportunity exists.
The Valuation: A stress-tested snapshot including downside risks (”Red Flags”) and our proprietary score.
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