Rheinmetall

Company Update:
MGCS: Franco-German ambitions unravel. France’s Chief of Defence Staff says Germany has opted for a national tank programme. MGCS survives on paper, but is now largely reduced to collaborative combat technologies. Mixed read-through for Rheinmetall: its Panther KF51 offers a potential alternative, but the upside hinges on the industrial workshare with KNDS. No immediate earnings impact.

Expert Opinion:
Defence remains a key strategic sector, and government spending is set to increase (at least in proportion) going forward. Yet over the very short term, budget constraints in Europe are likely to cap the news flow on the sector. We wouldn't chase Rheinmetall on  that news.  Despite the sharp drop in share price since early August, stock still trades on a PE 26 of c 25x (but down to 12.6x in 2028). Short term our favorite picks remain Thales and Leonardo. 

Note that Airbus, (Reduce, EUR149bn mkt cap, 9% downside) has a delivery target that looks increasingly at risk. September deliveries reached 72 aircraft, bringing Q3 to a disappointing 196. With just 547 aircraft delivered YTD (63% of guidance), Airbus needs another 323 in Q4, or 108 per month, versus a YTD average of 61. Even allowing for strong year-end seasonality, the required acceleration looks increasingly challenging, particularly following the A321neo quality issues. We are turning more cautious on Airbus, with growing downside risk to the ~870 delivery target and potential pressure on margins and cash conversion. The 14 October Q3 pre-close communication will be the next key test of management's confidence in guidance. 


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