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Rheinmetall expecting 20% growth as Leopards roll into Ukraine

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Rheinmetall [ETR:RHM], the German defence and security company,  has come under the spotlight recently as Germany has decided to send tanks to Ukraine to counter Russia.

The company, which had been expecting a windfall from higher defence spending due to the war in Ukraine, increased its mid-term sales outlook back in January. A day after the announcement from chief executive Armin Papperger Germany made the decision to send heavy Leopard tanks to Ukraine.

At the time, analysts at UBS retained their neutral rating on the stock with a price target of EUR233. Sven Weier noted that the Leopard tank deliveries had already been priced in.

Rheinmetall’s current share price is EUR225.7, up nearly 35% in the past six months.

Meanwhile, in a note published earlier this month, DZ Bank set a price target of EUR262 for Rheinmetall and rated it a ‘Buy’ due to the strong demand expected in the future.

Geopolitical Instability

Growing geopolitical instability, including the war in Ukraine, has renewed interest in arms manufacturers, which had been previously shunned by ESG-minded investors. Many NATO countries have been pushing for increased defence spending following the war and Germany announced a EUR100bn fund to modernise its army. All these should provide a boost to Rheinmetall, which is one of the largest defence companies in Germany, with a market cap of nearly EUR10bn.

But it doesn’t just build defence-related products. It also supplies automotive parts. So even during peacetime and lower defence spending, Rheinmetall has a stable revenue stream from the second part of its business.

The company, which expects to send 20 to 25 Leopard 1 tanks to Ukraine this year, with more to be delivered in 2024, was a contender to join the Dax40 index of German blue chip companies, but seems to have lost out to Commerzbank [ETR:CBK].

Export strength

It is of course, not just relying on the Ukraine war and Germany’s increased commitment to defence spending. It has also won a double-digit million euro order to supply air defence systems to an unnamed customer, and has received an order from the Finnish armed forces for its Spike antitank guided missiles.


In addition, it has partnered with American unmanned aircraft systems manufacturer AeroVironment NASDAQ:AVAV to compete for a NATO special forces project. Earlier this month, its joint venture with PolyCharge America in the US received its first order for DC-link capacitors.

According to preliminary figures, 2022 was a record year for Rheinmetall, with sales growing 13% to EUR6.4bn year-on-year. In an announcement at the beginning of January, the company said that it expects growth rates for the year to top 20% and it increased its previous operating margin guidance to at least 11.5%. It will announce full year results on 16th March.

Over one year, Rheinmetall’s share price is up 141%. It had a P/E ratio of 25.70.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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