Shares
in
German
defence
giant
Rheinmetall
[RHM]
have
almost
tripled
in
value
since
Russia
re-invaded
Ukraine
in
February
2022.
But
at
its
current
price
of
€284
(£243)
it
is
still
trading
in
undervalued
4-star-territory.
The
Düsseldorf-based
defence
company
mainly
manufactures
tanks
and
other
military
vehicles,
but
also
builds
weapon
and
ammunition.
Since
Russia’s
2022
invasion
it
has
secured
contract
after
contract
as
Europe
re-arms
and
ships
supplies
to
the
East.
According
to
the
German
Federal
Ministry
of
Defence,
projects
with
a
total
value
of
almost €47
billion
have
been
tendered
this
year
alone.
“We
initiate
coverage
of
Rheinmetall
with
a
wide
moat
and
fair
value
estimate
of
€343
per
share,
backed
by
expected
rises
in
defense
spending
due
to
global
threats
and
a
strategic
shift
to
ammunition
and
services,”
says
equity
analyst
Loredana
Muharremi.
“The
conflict
in
Ukraine
is
expected
to
boost
immediate
and
long-term
revenue
as
Germany
and
other
NATO
countries
are
supplying
substantial
defense
equipment,
including
vehicles,
to
Ukraine,
which
will
need
to
be
maintained
and
replaced”.
Destocking
Will
Support
Production
in
the
Long
Run
In
the
last
year,
much
of
the
talk
surrounding
the
conflict
has
focused
on
aircraft
and
artillery.
But
the
main
concern
has
been
ammunition,
and
in
particular
155mm
and
105mm
shells
widely
used
by
western
weapons.
“The
consumption
rate
in
Ukraine
is
depleting
stocks
rapidly,
suggesting
it
might
take
a
decade
to
rebuild
inventories
to
former
levels,
for
example
in
Germany,”
Muharremi
says.
“Rheinmetall
production
is
expected
to
rise
from
100,000
rounds
in
2022
to
700,000
by
2025,
tripling
sales
from
€1
billion
to
€3
billion”.
This
month
alone
the
company
has
announced
three
major
orders.
The
German
armed
forces
ordered
ammunition
for
the
Ukrainian
armed
forces
worth
hundreds
of
millions
of
euros,
while
Austria has
signed
an
order
worth
more
than
€500
million
to
modernise
the
Skyguard
air
defence
system.
An
unnamed
NATO
member
state
has
also
ordered
ammunition
worth
€140
million
specifically
for
the
Ukrainian
armed
forces.
“The
weapons
and
ammunition
division
presents
the
highest
divisional
adjusted
EBIT
at
25%,”
says
Muharremi.
The
division
is
projected
to
grow
at
a
35%
compound
annual
growth
rate
over
five
years.
Rheinmetall’s
eletronics
division
should
also
benefit
from
defence
digitalisation
in
Germany
and
its
participation
in
the
European
Sky
Shield
Initiative,
with
procurement
for
Rheinmetall’s
Skyranger
platform
for
the
next
three
years
expected
to
be
about
€5
billion.
In
addition,
the
company
also
plays
a
role
in
the
F-35
jet
fighter
programme
as
a
fuselage
manufacturer.
Rheinmetall
has
been
listed
in
the
DAX
since
March,
when
it
displaced
dialysis
specialist
Fresenius
Medical
Care
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