Rheinmetall (AO) | Buy | The Q2 call provided a blend of good and bad news

Research evidence excerpt

Rheinmetall (AO) | Buy | The Q2 call provided a blend of good and bad news

Rheinmetall Buy | Target Price: EUR2264.00

Company description Management

Rheinmetall is a defence group that is active in all five military domains: land, air, Armin Papperger, CEO

sea, space and cyberspace. It is a market leader in armoured vehicles, weapons & Klaus Neumann, CFO

ammunition, and electronics. The company is a key supplier to the German Key shareholders

army. Free float 100.00%

Fidelity 4.99%

LSV ASSET MANAGEMENT 3.08%

BlackRock 3.04%

Investment case Valuation methodology

As a key supplier to Germany's armed forces, it is also the key Our TP is derived from a 2:1 blend of a DCF model (avg. annual

vehicle to play the country's plans to expand defence spending. FCF of EUR6.8bn, avg. cost of equity of 10.3%, 2% perpetual

Rheinmetall is hence well-positioned to capitalise on the growth) and a peer multiple approach (23.3x).

German rearmament trend. While our DCF is a three-stage model, the peer multiple

Capacity expansiosn are underway to support the company's approach applies a P/E which applies the average of defence

ability to execute on the major orders which will drive future peers.

growth. Risks to our rating

Its product portfolio puts Rheinmetall in the sweet spot of the Any downturn in the auto industry impacts its margins in

trend to rearmament, resulting in prospects of profitable, cash- trimming positive operating gearing effects.

generative structural growth. Specifically, its exposure to Germany is a key customer for the Defence division. Any delay or

ammunition means it will be able to see growth unfolding reduction in the country’s planned defence spending would be

already in the short-term. Rheinmetall is a prime vehicle to play negative for Rheinmetall.