Secunet Security Networks jumps 6% after Berenberg starts coverage with “buy”

Investing.com -- Shares of secunet Security Networks AG rose more than 6% on Tuesday after Berenberg initiated coverage of the German cybersecurity company with a “buy” rating and a €233 price target, noting its central role in government digital infrastructure and growing demand tied to defense and public-sector modernization programs.

Berenberg described Secunet as Germany’s leading provider of mission-critical cybersecurity solutions, protecting sensitive government data, critical infrastructure, and communications networks. 

The brokerage said roughly 90% of the company’s revenue comes from public-sector contracts, positioning it to benefit from increasing military and digital infrastructure spending.

Germany’s defense budget has expanded sharply, reaching 2.4% of GDP (€86 billion) in 2025. The government aims to raise that figure to 3.5% of GDP (€155 billion) by 2029 under a long-term modernization plan that includes €400 billion for defense programs and a €100 billion special fund for the Bundeswehr through 2027.

Cyber defense and secure communications are identified as core areas of investment. According to the report, Secunet derives 25% to 30% of its revenue from defense-related projects.

Public-sector digitalization is another key driver. The report cited Germany’s low ranking in digital administration within the European Union, noting that the country placed 21st out of 27 in a Bitkom index. 

The federal government has launched initiatives including the Online Access Act, which requires public services to be digitized; the creation of a Digital Ministry in May 2025; and a €500 billion infrastructure fund to support modernization and automation programs through 2036.

Berenberg said new European Union regulations are also supporting growth in cybersecurity spending. The Cyber Resilience Act, taking full effect in 2027, requires digital products sold in the EU to meet minimum security standards. 

The NIS2 Directive, implemented in 2024, expands requirements for risk management, incident reporting, and compliance across critical sectors such as energy, healthcare, and public administration.

The brokerage said Germany’s cybersecurity market reached €11.2 billion in 2024, up 13.8% from the previous year. Software was the fastest-growing segment, rising 17.3% to €5.8 billion, followed by services at €4.4 billion and hardware at €1 billion.

Berenberg forecast revenue growth at a compound annual rate of 9% through 2027, driven by continued public-sector demand. Sales are projected to increase from €394 million in 2023 to €529 million in 2027, while EBIT is expected to rise from €43 million to €72 million. 

The brokerage projects earnings per share to climb from €4.31 in 2025 to €7.35 in 2027, and return on capital employed to grow from 28% to 44.7%.

The price target of €233 is based on a discounted cash flow model using an 8% weighted average cost of capital and a 2% terminal growth rate.

Berenberg said Secunet’s shares are trading near their historical averages but may benefit from increasing government spending and high returns on capital.

Secunet’s flagship encryption platform, the Secure Inter-Network Architecture (SINA), has become the standard system for classified communications in the German public sector, including the federal ministries, embassies, and the Bundeswehr. 

The system supports communication up to the “secret” classification level. Berenberg said this entrenched position creates high barriers to entry and results in long-term client retention.

The company’s business model is described as demand-driven, with most products developed through commissioned public-sector projects. The report said this approach ensures stable revenue and limited exposure to market fluctuations.

Berenberg also outlined several risks. These include dependence on German public-sector budgets and procurement schedules, reliance on hardware suppliers such as Lenovo and Siemens, rapid technological change including the threat of quantum computing to existing encryption systems, and competition from larger global cybersecurity firms.

Despite these challenges, Berenberg said Secunet’s financial position remains solid, with no debt, strong cash generation, and a 50% dividend payout ratio. 

The company reported €394 million in sales and €29 million in net profit in 2023, and is expected to maintain a capital-light model supported by partnerships for hardware sourcing.

The brokerage said Secunet’s role as a trusted technology partner for the German government and its alignment with public-sector modernization programs provide visibility for multi-year growth.