Rheinmetall’s €1bn Truck Order and a Contrarian Upgrade Battle the Shadow of a State-Backed Rival

Berlin matches France's stake in tank maker KNDS ahead of €20bn IPO; Rheinmetall secures €1bn truck deal but faces revenue miss and mixed analyst views.

The political chessboard in European defence shifted abruptly on 21 May, when the German government agreed to take a 40% stake in KNDS, matching France’s existing position. The remaining 20% of the pan-European tank maker is slated for an initial public offering in June, valuing the enterprise at up to €20bn. Berlin’s direct entry into the ownership structure of Rheinmetall’s biggest rival adds a new layer of complexity for the Düsseldorf-based group, just as it tries to reassure investors that its record order book can be turned into cash.

KNDS has already begun tidying its balance sheet ahead of the listing, selling down its stake in transmission specialist Renk. The accelerated placement of 5.8 million Renk shares raised €262m and cut KNDS’s holding to around 10%, subjecting it to a 180-day lock-up. The move reinforces the message that KNDS is serious about becoming a fully-fledged listed rival — one with direct government backing on both sides of the Rhine.

Rheinmetall, meanwhile, landed a timely contract of its own. The Bundestag’s budget committee approved the procurement of nearly 600 unarmoured military trucks from Rheinmetall MAN Military Vehicles in mid-May, a deal worth roughly €1bn. The order covers 576 HX2 trucks with a 15-tonne payload and 34 smaller HX2 models, with delivery scheduled to wrap up by November 2026. It is the fourth call-off under a framework agreement for up to 6,500 vehicles.

The order came as a welcome antidote to a disappointing first quarter. Rheinmetall posted revenue of €1.94bn, well short of the consensus estimate of €2.3bn. The operating result rose 17% to €224m, lifting the margin to 11.6%, but a build-up of inventories weighed on free cash flow, which landed at minus €285m. Earnings per share climbed to €2.42 from €1.92 a year earlier. Management is sticking with its full-year target of 40–45% revenue growth, and chief executive Armin Papperger has pointed to a stronger second quarter as delayed truck deliveries and production shifts at the Murcia ammunition plant in Spain begin to hit the top line.

The market’s verdict was mixed. Citigroup analyst Charles Armitage upgraded the stock from Neutral to Buy with a price target of €1,408, arguing that the sell-off on peace hopes in the Ukraine conflict had been overdone. JPMorgan is even more bullish, with a €1,500 target. On the other side of the fence, UBS kept its Buy rating but slashed its target from €2,200 to €1,600 on 20 May, citing concerns about Rheinmetall’s positioning now that a state-anchored KNDS will compete more directly for major European programmes. Across 20 analysts the average price target still stands at a lofty €2,009.

Technically, the stock remains under pressure. At its 21 May close of €1,216.40, shares had clawed back 8.24% over a week but remained 14.77% lower over the past month. The year-to-date decline stands at 24.05%, and the stock is 39% below the 52-week high of €1,995. The 14-day relative strength index of 85.6 signals short-term overbought conditions, while the price sits 14.2% below the 50-day moving average and 26.1% below the 200-day line. The recent bounce looks more like a counter-move than a confirmed trend change.

Looking ahead, the second-quarter report due on 6 August will be pivotal. Investors will want to see whether the inventory build converts into revenue growth and whether Papperger can articulate how Rheinmetall plans to hold its ground alongside a politically fortified KNDS. The dividend forecast of €15.17 per share for the full year — up from €11.50 — offers some comfort, but execution remains the dominant theme. In a sector where record backlogs are no longer enough, Rheinmetall needs to prove it can convert orders into margin and cash flow without losing market share to a rival that now wears a German tricolour on its balance sheet.