Germany's Leopard tank move puts spotlight on its maker: Rheinmetall

WORLD  26 January 2023 - 23:01

Reuters has published an article saying that as a result of Germany's long-awaited decision to export the powerful Leopard tanks—which Rheinmetall produces in collaboration with competitor Krauss-Maffei Wegmann—to Ukraine, the company's shares, which have been trading for over 134 years, hit a new high. Caliber.Az reprints the article.

Armin Papperger is on a roll.

On January 24, the chief executive of Germany defence champion Rheinmetall (RHMG.DE) nudged up the group's mid-term sales outlook in anticipation of a windfall from higher defence spending due to the war in Ukraine.

A day later, Germany's long-awaited decision to send heavy Leopard tanks to Ukraine, which Rheinmetall produces jointly with peer Krauss-Maffei Wegmann, pushed shares in the nearly 134-year old firm to a record high.

This has given the maker of tanks, ammunition and other war equipment a valuation of around 10 billion euros ($11 billion), an increase of two and a half times over the past year and potentially promoting it to Germany's blue-chip DAX (.GDAXI) index.

For Papperger, 59, who has led the company for the past decade, Russia's invasion of Ukraine has not only brightened the group's business prospects but also led to a change in perception in a nation traditionally critical of Germany's role in military conflicts.

"In former times we were insulted and sometimes threatened. Today people say and write to me: 'Thank God you're around'," Papperger, an avid hunter who keeps miniature models of tanks in his office, told German magazine Stern this week.

Part of Chancellor Olaf Scholz's proclaimed "Zeitenwende" - a shift towards more assertive foreign policy after decades of military attrition - Wednesday's move follows mounting pressure to send better fighting equipment to Kyiv.

"I think about what weapons can do. But I also think about what can happen when you don't have weapons. You can see that right now in Ukraine," Papperger, a trained engineer who joined Rheinmetall in 1990, said.

Founded in 1889 to provide ammunition to the then German Empire, Rheinmetall continued to be a key supplier of weaponry to Germany's military during both World War One and Two, during which the company was temporarily nationalised.

"PRICED IN"

Today, the company, which is also a key supplier to the automotive sector, employs more than 25,000 worldwide and apart from the Leopard battle tank also makes the Puma and Marder infantry fighting vehicles as well as several types of ammunition.

Rheinmetall's direct deliveries to Ukraine so far included air defence systems used to combat drones, ammunition, military trucks as well as a field hospital.

The group has said it can deliver a total of 139 Leopard tanks - 51 of the model 2 and 88 of the older model 1 - to Ukraine. Rheinmetall has said that 29 of the Leopard 2A4 tanks could already be delivered by April or May.

Analysts at Stifel Equity Research estimate Leopard deliveries could bring in between 300 million euros and 350 million euros of sales for Rheinmetall this year and next.

While that would be a fraction of total sales - seen at 7.6 billion euros in 2023 according to Refinitiv estimates -as the sole qualified supplier of Leopard 2 ammunition, the group could see a significant boost to its earnings, Stiefel said in a note on Wednesday.

The brokerage estimates ammunition sales could lift Rheinmetall's core earnings by 32 million euros each month, potentially doubling the group's monthly profit based on numbers reported for the first nine months of 2022.

UBS analysts warned though that while Rheinmetall's shares largely priced in future defence orders, they had yet to materialise.

Papperger, too, this week called on Berlin to quickly turn its 100 billion euro special military budget Scholz announced last year into firm orders, saying industry was standing ready to deliver but needed planning certainty.

"The entire German industry is ready," he said at an industry event.

($1 = 0.9197 euros)

Caliber.Az