Procurement processes moving at a sluggish pace in Germany, with Rheinmetall maintaining its predicted progress
Thursday morning saw a decline in the shares of German defense companies Rheinmetall, Hensoldt, and Renk. Rheinmetall's shares fell by 3.8%, Hensoldt's shares dropped by 2%, and Renk shares decreased by 1.59%.
Rheinmetall's second-quarter revenues increased by nearly 9% to €2.43 billion, but the company's figures fell short of analysts' expectations. The respective margin dropped from 12.1% to 11.3% in the second quarter, and the operating result rose by over 2% to €276 million.
Despite the shortfall, Rheinmetall remains optimistic about the future. The company is adjusting its targets due to the expected increase in demand stemming from Europe's planned military buildup in response to recent geopolitical developments. Rheinmetall anticipates that this demand surge, driven by intensified defense spending, will positively impact its sales and operating results, potentially leading to an upward adjustment of its annual forecast if the expected increase materializes.
The company's confidence is rooted in the substantial rise in its order backlog, reflecting strong market interest. Rheinmetall sees a continuation of very good order intake and a strong market environment in its defense business, which has already grown significantly. This reasoning underpins its confidence in meeting or exceeding its sales growth and operating margin targets for 2025.
However, the decline in shares on Thursday morning may be attributed to the slowing down of the order intake, with the so-called nomination standing at €2.64 billion in the second quarter, lower than the €11.44 billion in the previous year. Rheinmetall attributed the lower order intake to delayed order placement in Germany following the spring elections.
Rheinmetall reaffirmed its annual forecast but hinted at adjusting its targets as Europe's planned military buildup takes shape. The company's optimism is shared by the German government, which has pledged to increase defense spending to 2% of GDP by 2024.
In summary, the declines in the shares of Rheinmetall, Hensoldt, and Renk on Thursday morning may be a temporary setback as the companies navigate the changing defense landscape in Europe. As the continent prepares for a military buildup, these companies are well-positioned to benefit from increased demand for defense products and services.
- The slowing down of the order intake in the defense industry, as seen in Rheinmetall's case, might have some ripple effects in the finance sector, with potential implications for companies like Hensoldt and Renk, both key players in the aerospace and defense industry.
- Despite the temporary decline in shares on Thursday morning across the defense sector, the long-term outlook for companies like Rheinmetall, Hensoldt, and Renk remains positive, given the anticipated increase in defense spending and the planned military buildup in Europe, which is expected to boost demand for defense products and services in the aerospace and finance industries.
