Rearmament tailwind Defence Company Rheinmetall Aims for Strong Growth

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In light of its latest acquisitions (such as NVL), Rheinmetall now aims to continue growing significantly, it is said. The defence boom, of course, also helps.

Rheinmetall plans to grow significantly. However, last year Germany's largest defence company only met the lower end of its forecasts despite the immense demand for defence goods, as it must be said. On the other hand, shareholders could look forward to an unexpectedly high dividend. Nevertheless, the stock dropped significantly (-6.6 percent), even hitting a yearly low and sinking to the last place in the DAX. The stock is considered stable, but the profits for the current year are therefore lost. According to experts, Rheinmetall is likely experiencing "growing pains," which could present an attractive entry opportunity. Additionally, the earnings outlook is below market expectations.

Rheinmetall's backlog is set to double

Rheinmetall is expected to have a significant share of the rising defence expenditures. Revenue this year is set to increase by 40 to 45 percent, reaching 14 to 14.5 billion euros (approx. 16 to 16.7 billion USD). Organic growth (excluding acquisitions) is projected to be between 28 and 31 percent. In terms of the operating profit margin, Rheinmetall CEO Papperger expects it to be around 19 percent. The high demand could be the driving force to achieve these targets. By the end of December, the backlog amounted to 63.8 billion euros (approx. 73 billion USD). This order backlog includes binding orders and framework agreements. This meant that Rheinmetall’s order books were fuller than ever before, as emphasised. The so-called nomination rose by nearly nine percent last year (to 26.4 billion euros). This metric includes both classic order intake and, among other things, the volume from newly concluded framework agreements. According to Rheinmetall executives, the backlog is expected to more than double this year, even though the change in the federal government caused slight delays, which are still being felt.

Rheinmetall focuses solely on defence

Rheinmetall is increasingly focusing entirely on the defence business. The Düsseldorf-based company plans to divest its automotive supply division, which has already been excluded from the balance sheet as a discontinued operation. At the same time, the company, known primarily for military land and air defence systems, is venturing into shipbuilding and space-based defence through the acquisition of the naval shipbuilder NVL and a joint venture related to satellites. According to CEO Papperger, the development into a comprehensive systems provider in the defence sector is already paying off, thanks in part to significant customer prepayments and the resulting sharp increase in free cash flow. The Rheinmetall executive also considers further acquisitions very likely.