Rheinmetall Taps Bond Market for €500m as It Races to Convert €73bn Order Backlog into Revenue

German arms maker raises €500M via bond as it targets €14.5B sales by 2026, despite Q1 revenue miss and production delays; CEO buys shares, analysts see over 60% upside.

Rheinmetall has taken the unusual step of issuing an unsecured bond for the first time in 16 years, raising €500 million to finance the rapid scaling of its defence production. The move comes as the German arms maker seeks to convert a record €73 billion order backlog into revenue while reassuring investors after a disappointing start to the year.

The bond sale underscores the scale of the group’s ambitions. Management is targeting sales of up to €14.5 billion by 2026, with an operating margin of around 19%. The current order book already covers 91% of that revenue goal, providing unusual visibility for a company that has historically been more opaque in its forward guidance.

First-Quarter Miss and Production Bottlenecks

Rheinmetall’s first-quarter results landed well below analyst expectations. Revenue rose 8% year-on-year to €1.94 billion, but the market had pencilled in roughly €2.3 billion. The shortfall was attributed to delivery delays on military trucks and munitions, compounded by a accident at the company’s plant in Murcia, Spain, that temporarily disrupted production.

The weak top-line figure was accompanied by a deeply negative operating free cash flow, which management dismissed as a pure timing effect. Cash was tied up in building inventory to support the coming ramp-up. “We are pre-positioning material for growth,” the board said in its investor communications.

Despite the hiccup, executives left the full-year guidance unchanged. Barclays analyst Afonso Osorio reiterated his “Overweight” rating and €2,035 price target on the stock, implying more than 60% upside from current levels. He argued that the structural growth story remains fully intact and expects a strong second quarter to make up for lost ground. The bank forecasts full-year profit growth of 45%, far outpacing the industry average of 19%.

Buy Signals from the Top

The share price has already begun to recover from its mid-May low of €1,118. It closed at €1,237 on Wednesday, posting an 8% weekly gain. A relative strength index of nearly 88 points to strong short-term momentum, though the stock still sits well below the all-time high of just under €2,000 set last September.

Insider purchases have added to the bullish tone. Chief executive Armin Papperger recently bought shares in the open market, a move that market observers interpret as a vote of confidence in the second-half outlook. The company’s management is currently on a roadshow in New York and London, presenting its strategy to institutional investors at two major finance conferences.

New Marine Unit and US Expansion

A key growth driver is the newly formed naval division, created from the former military arm of the Lürssen group. The business, fully consolidated since spring, contributed millions in revenue in its first month alone. Rheinmetall is also pushing ahead with expansion in the United States, a topic that will feature prominently at a Deutsche Bank conference in Frankfurt on 26 May, where the group will continue its investor tour.

The bond issuance, meanwhile, marks a notable shift in financing strategy. Rheinmetall had not publicly placed a straight bond since 2010, relying instead on internal cash flow and bank lines. The decision to tap the capital markets now reflects the sheer scale of investment needed to execute its order book — a fact that has not been lost on investors, who are watching cash flow trends closely when the next set of numbers arrives.

The broader defence sector backdrop also remains supportive. News that the German government is planning to take a minority stake in tank builder KNDS has further buoyed sentiment, reinforcing the view that state backing for the industry is here to stay. For Rheinmetall, the challenge now is operational: to convert paper orders into hardware, bridge the gap between inventory build and cash generation, and prove that the first-quarter stumble was nothing more than a speed bump.