(New: Details on lower 2023 defense outlook in paragraphs 1 and 5, UBS analyst in paragraph 5, price action updated)
DÜSSELDORF (dpa-AFX) – The armaments group and automotive supplier Rheinmetall continues to benefit from high demand for ammunition and defense technology in view of the Ukraine war. Business with the auto industry has been going well recently, but the prospects here are now clouding over. For this reason, company boss Armin Papperger had also cut back on the sales forecast at the end of July. According to a presentation on Friday, the board of directors also expects armaments orders to be postponed to the coming year, which is why it lowered the sales outlook for 2023. This did not go down well with investors in the stock market.
The Rheinmetall share price came under significant pressure on Friday. With a price loss of around ten percent to 171 euros, the paper was the biggest loser in the MDAX, the index of medium-sized stocks. As a result, the price also slipped below the important support around EUR 180, at which it had caught itself several times since May in the event of setbacks. The support is gone and should probably pose an obstacle to possible recovery attempts in the coming days or weeks.
After the first quarter, Rheinmetall had still expected orders of 13 to 15 billion euros for the armaments business in the current year. Now it should be 10 to 12 billion, which would still be a big jump after the 4.8 billion from last year.
One reason for the cut forecast is that there is now more clarity about the use of the special fund for the armed forces give, it was said by the group. In addition, a major order from Slovakia for light infantry tanks recently went to competitor BAE Systems, explained analyst Olivia Charley from the investment bank Goldman Sachs.
In principle, however, the management remains confident. “In many of the nations we supply, the modernization or expansion of armed forces equipment continues to gain importance as a result of the war in Ukraine,” the company explained in the quarterly report. For this reason and because of the historically high order backlog in the armaments division, business should continue to grow vigorously in the coming years. However, 2023 is initially only calculated with a turnover of around 5.5 billion euros in the armaments division, after at least 5.5 to 6 billion euros previously announced. The step is a logical consequence of the order delays and should lead to slightly lower market expectations, explained analyst Sven Weier from the major Swiss bank UBS.
However, the automotive markets continue to be characterized by greater fluctuations. Rheinmetall is therefore still anticipating a recovery in international car production over the course of the year, but this is likely to be much slower than expected at the beginning of the year. The car manufacturer BMW had recently cut its sales targets for the current year. Rival Mercedes-Benz (Mercedes-Benz Group (ex-Daimler)) has become more optimistic about sales and profits, but only thanks to price increases and the shift of business towards more expensive luxury cars.
Against this background, Rheinmetall only expects organic sales growth of around 15 percent in 2022. This corresponds to the lower end of the previous target range of 15 to 20 percent. Last year, the group had implemented 5.66 billion euros.
With regard to the expected profitability, however, nothing has changed. The company continues to expect an operating profit margin of over eleven percent. The operating result should thus be above the 594 million euros from the previous year.
After sales grew by 7 percent to a good 1.4 billion euros and the operating result by 7.5 percent to 114 million euros in the second quarter, Rheinmetall had sales of 2.7 billion euros and an operating result of 206 million after six months euros to book. Overall, the second half of the year is likely to be even better than the first.
The bottom line is that shareholders accounted for a net profit of 57 million euros in the second quarter, after a loss of 40 million euros a year ago due to an impairment for the piston business that is up for sale./mis/stw/lew/men
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