Rheinmetall Sheds Its Last Civilian Arm, Yet the Market Wants More Proof

Rheinmetall completes transformation with €350M sale of Power Systems, becoming a pure-play defence contractor. Stock down 25% YTD despite record backlog and new drone contracts.

Germany’s largest defence contractor has drawn a definitive line under its industrial past. On 3 June, Rheinmetall signed an agreement to sell its Power Systems division to the industrial holding AEQUITA for €350 million in enterprise value. The unit, which generated roughly €2 billion in revenue last year and employs 6,250 people, is the final non-defence asset in the portfolio. Closing is expected in the fourth quarter of 2026, subject to regulatory clearance. The move turns Rheinmetall into a pure-play defence house — more dependent on government budgets than ever, but also more focused.

That clarity of purpose has yet to resonate with equity investors. Rheinmetall’s shares changed hands near the €1,208 mark this week, roughly 25% lower than at the start of the year and almost 40% below the September 2025 peak of €1,995. The stock is trading well under its 200-day moving average of about €1,617, and the current price-to-earnings ratio of around 32 leaves little room for execution slip-ups.

Morgan Stanley recently poured cold water on the entire European defence sector, downgrading Rheinmetall to Equal-weight. The research note dragged peers like Hensoldt and Renk lower too, reflecting a broader shift from institutional euphoria to a more measured assessment of operational delivery risks. For a stock already struggling to regain altitude, the timing was unhelpful — coming just as the ILA Berlin air show opened its doors.

Rheinmetall is using the ILA stage, which runs until 14 June and covers 840 square metres of exhibition space, to reposition itself as an integrated systems provider for land, air and space — not merely a tank-and-ammunition manufacturer. Among the showcased hardware is the FV-014, a new loitering munition weighing roughly 20 kilograms that can fly up to 70 minutes and strike targets 100 kilometres away. A single operator can manage multiple drones in a swarm. In April the Bundeswehr signed a framework agreement worth several billion euros for the system.

Also on display is the MV-8 Komodo, an unmanned mine-clearing vehicle developed with Croatian firm DOK-ING, in which Rheinmetall holds a 51% stake. And the partnership with Boeing Australia has deepened: Rheinmetall is now the system manager in Germany for the MQ-28 Ghost Bat, an autonomous combat drone, integrating it into Bundeswehr command networks and tailoring it to national requirements.

A separate joint venture, Rheinmetall ICEYE Space Solutions, underlines the company’s push into space-based reconnaissance. The Bundeswehr has already awarded a framework contract for radar satellite imagery.

The financial backdrop remains robust despite the share price weakness. In the first quarter of 2026, revenue expanded 8% year-on-year to €1.9 billion, while operating profit jumped 17% to €224 million. Management reaffirmed full-year guidance. The order backlog stands at a record €73 billion, giving strong visibility into future production.

The next catalyst arrives on 6 August, when Rheinmetall publishes its half-year results. By then the market will have seen whether second-quarter profitability continues to widen — and whether the valuation gap between a €1,208 stock and a €73 billion backlog can begin to close. For now, the strategic story is clear; the financial payoff is still waiting for confirmation.