Rheinmetall shares rise nearly 4% amid geopolitical tensions in Europe

Shares of Germany’s largest defence group, Rheinmetall (RHM.DE), are up almost 4% today amid rising tensions between NATO and Russia. The Kremlin warned the United Kingdom of retaliatory strikes if British drones and weapons are used in attacks on Russian territory, while additional uncertainty comes from the CIA chief’s visit to the Kremlin and a meeting between U.S. Under Secretary of Defense Elbridge Colby and NATO Secretary General Mark Rutte. Today, Rheinmetall also announced that it will invest around EUR 270 million in expanding its Kassel facility, including higher tank production capacity, a drone testing centre and a new logistics hub.

• CEO Armin Papperger said Kassel is set to become the largest tank factory in Europe.
• Employment at the site is expected to rise from around 2,200 to 3,500 workers.
• The new logistics centre is scheduled to begin operations at the end of 2027.
• Rheinmetall also plans to establish a drone testing centre in Kassel.
• The plant already plays a key role in the production of Rheinmetall armoured vehicles, including the Boxer wheeled armoured vehicle.
• The German state of Hesse is expected to contribute around EUR 25 million to the investment.

Rheinmetall chart (D1 interval)

Rheinmetall shares have moved out of a downward price channel on the daily chart and are breaking above the 50-day exponential moving average, shown by the orange line, near EUR 1,167. Sentiment is also being supported by uncertainty surrounding the geopolitical situation in Europe ahead of the autumn period. Other defence stocks are also performing well, including Italy’s Leonardo and BAE Systems.

Rheinmetall remains a company with very strong operating fundamentals, but it is also trading at a significant valuation premium. The share price stands at around EUR 1,181, while market capitalisation is approximately USD 65.2 billion, with a trailing P/E of 77.9x, forward P/E of 35.4x and EV/EBITDA of 26.6x. The market is therefore still paying a high price for expected growth linked to rising European defence spending.

The results nevertheless show that the company has been able to translate stronger demand into improving profitability. EBIT margin stands at around 9.1%, ROE at 7.6%, while leverage remains relatively low with a Debt/Equity ratio of 0.4x. At the same time, performance over the past eight quarters has been more uneven, with revenue CAGR at -2.0% and EBIT CAGR at -4.4%, while EPS increased by 3.6%.

The chart also shows significant quarterly seasonality, together with stronger margins and returns on capital during the best periods. In the latest quarter, revenue reached around EUR 1.9 billion, ROIC stood at 6.5% and net profit margin at 5.7%. Following a roughly 24% decline in the share price since the beginning of the year, valuation is lower than before, but it still remains demanding and assumes continued execution of the company’s ambitious growth plans.