Renk Faces a Cash Conversion Crossroads as Record Orders Collide with NATO Budget Shifts

Defence supplier Renk's shares rise 3.54% after record quarterly order intake, but cash generation and shifting NATO spending pose risks; analysts split with €50-€60 targets.

Renk’s stock rose 3.54 percent on Friday to €44.06, bouncing after a positive pre-close call in which management flagged another record quarterly order intake. Yet the relief rally does little to resolve the central tension that has kept the shares more than 50 percent below their 52-week high of €88.73: whether a cavernous order book can finally translate into the cash generation needed to reassure institutional investors.

The Augsburg-based defence supplier told analysts during the pre-close call for the second quarter that order intake had reached a fresh all-time high for a single quarter. mwb Research models that figure at roughly €620 million, keeping the full-year target of about €2 billion within reach. Revenue, however, is set to show only a modest increase of around 1 percent to about €350 million, held back by a delivery gap in Israel that shifts between €80 million and €100 million of sales into the second half.

On the profitability front, the adjusted EBIT picture is more encouraging. mwb Research estimates second-quarter EBIT at €52 million, which would put the company comfortably in the upper half of its full-year guidance range of €255 million to €285 million. Management reiterated its confidence in that outcome, citing the extensive fixed order backlog.

The real debate, however, centres on liquidity. Renk’s cash conversion rate – the proportion of earnings that turns into free cash flow – stood at 59 percent on a trailing twelve-month basis, a meaningful improvement from the 47.2 percent recorded in the prior quarter, when free cash flow reached only €67 million. The company’s own target is above 80 percent. The first quarter’s operational performance already outpaced the increase in working capital, and sustaining that trend in the coming quarters could blunt one of the main criticisms levelled at the stock.

That improvement matters because sceptics have long pointed to the gap between the record backlog and actual cash generation. A source of particular unease is the changing complexion of NATO defence spending. The alliance is gradually reallocating resources away from traditional land forces toward air defence, long-range weapons, drones and surveillance – areas that do not play to Renk’s core strength as a builder of transmissions for armoured vehicles. mwb Research responded to the NATO summit by downgrading both Renk and Rheinmetall, leaving a €50 price target on Renk. On the day of that revision, the stock slumped.

Adding to the headwinds, a leaked document outlining Germany’s 2027 procurement budget reportedly includes cumulative cuts for armoured vehicles, further fuelling the debate about Renk’s long-term order trajectory. Jefferies, however, continues to rate the stock a buy with a €60 target, a potential 40 percent upside from current levels.

Technically, the rally has done little to repair the damage. Renk remains 6.31 percent below its 50-day moving average of €47.03 and 18.97 percent below the 200-day line of €54.38. The Chaikin Money Flow indicator stays negative, signalling persistent capital outflows that could distinguish a genuine bottom from a mere pause in the downtrend. The relative strength index at 45.5 is neutral, leaving room for further recovery – but a sustainable turnaround will need more than a single strong trading day.

Renk simultaneously published a regulatory filing under Section 40 of the German Securities Trading Act, continuing a pattern of repeated notifications tied to institutional stake changes. The decisive test now is the half-year report due in August, when investors will see whether the cash conversion momentum from the first quarter can be confirmed. Until then, the stock is likely to swing between the upward pull of a record order book and the structural drag of shifting defence priorities.