Rheinmetall’s €285m Cash Drain Casts a Shadow Over Record Order Book

Rheinmetall's Q1 revenue missed estimates at €1.938bn, but operating profit rose 17%. Negative free cash flow of €285m contrasts with a record €73bn order backlog, as investors await a path to cash generation.

The defence giant’s first-quarter results delivered a split-screen picture of operational strength and financial strain, leaving investors to weigh a €73bn order backlog against a deeply negative free cash flow.

Revenue climbed 7.7% to €1.938bn in the three months to March, but fell well short of the €2.3bn analysts had pencilled in. Management attributed the shortfall to timing — pre-produced trucks for a German customer and higher ammunition deliveries from the new Murcia plant are expected to be taken off the books in the second quarter. The group maintained its full-year guidance for 40% to 45% revenue growth, an operating margin of around 19%, and a cash conversion rate above 40%.

The profit picture was brighter. Operating profit rose 17% to €224m, pushing the margin to 11.6% from 10.5% a year earlier — bang in line with market expectations. The improvement reflects growing efficiency as Rheinmetall ramps up production capacity across its ammunition and vehicle lines.

Yet the headline that caught the market’s attention was the operating free cash flow: minus €285m. Rising capital expenditure and swelling working capital, combined with low customer advance payments, drove the figure deep into negative territory. The full quarterly report due on Thursday will be scrutinised for any sign of a credible path back to positive cash generation.

The order book tells a more reassuring story. It swelled 31% to a record €73bn, fuelled by a €4.9bn nomination and the initial inclusion of Naval Systems’ backlog. AlphaValue summed up the dynamic neatly: the structural defence theme and the massive order pipeline remain intact, but Rheinmetall is increasingly becoming an execution story.

A €40bn Prize and a €300m Deal

All eyes are now on the “Arminius” project. The Bundeswehr plans to procure more than 3,000 GTK Boxer armoured vehicles in a deal worth around €40bn, of which Rheinmetall’s share would be roughly €22bn. The group holds a 64% stake in the ARTEC GmbH consortium that manufactures the vehicles. Observers expect a contract to be signed in the first half of 2026.

Separately, a framework agreement worth €300m for loitering munitions was announced. Rheinmetall has also expressed interest in the insolvent Romanian shipyard ?antierul Naval Mangalia, with a view to establishing Romania as a European hub for military and civilian shipbuilding.

CEO Armin Papperger highlighted the group’s ammunition production leadership. Rheinmetall now manufactures 1.1m artillery shells annually — nearly double the 600,000 units the US produced in 2024. Medium-calibre ammunition capacity has surged from 0.8m to over 4m units per year.

Analyst Optimism Meets Technical Caution

The share price closed at €1,433.80, roughly 28% below its 52-week high of €1,995 but about 7% above the late-April trough. The relative strength index of 76 signals that the recent recovery has pushed the stock into technically overbought territory.

Analyst targets remain lofty. Goldman Sachs has a €2,300 price target with a Buy rating, Jefferies is at €2,220 (Buy), DZ Bank at €2,188, Deutsche Bank at €2,100 (Buy), and Bernstein at €2,050 (Outperform).

Institutional tailwinds are building. The German sovereign fund Kenfo has lifted its restrictions on defence-sector investments, opening the door for ESG-constrained capital that had previously been barred from the sector. That dovetails with the planned increase in Germany’s defence budget to €150bn — a structural support for the entire industry.

The virtual annual general meeting is set for 12 May, where the board will propose a dividend of €11.50 per share and two supervisory board members will step down. For now, the market is betting that the second quarter will deliver the revenue catch-up and cash-flow improvement needed to justify the premium valuation.