Rheinmetall AG and other defense names resumed recent declines on Monday amid signs of progress in talks to secure Ukraine’s support for a US-backed peace plan ahead of Thursday’s deadline. According to Graeme Bencke, a fund manager at Amati Global Investors Ltd., there’s been a change in market sentiment toward the Russian conflict in Ukraine. While progress is not expected to be imminent — German Chancellor Friedrich Merz on Monday said not to expect a breakthrough this week — the recent declines have taken the froth off a huge rally in European defense stocks that began around the time Russia invaded Ukraine in February 2022.
  • Sepia@mander.xyz
    1·
    5 days ago

    Financial Services firm Morningstar sees European defense stocks as undervalued after the recent overreaction to potential peace deal ignores the real drivers of demand.

    The market reaction is overstated. European defense valuations are anchored in structural budget increases rather than short-term Ukraine revenue, and rearmament plans are unlikely to reverse even in the event of a peace agreement …

    European governments’ long-term demand reflects inventory rebuilding, capability and platform scale-up, and autonomy from US support … to reach 3.5% of GDP on defense spending. These fundamentals remain intact and support order visibility, backlog conversion, and cash generation.

    Ukraine procurement is marginal for most contractors. Germany is now the largest single supporter of Ukraine. Yet, Rheinmetall has only EUR 1.7 billion of Ukraine orders within an EUR 64-billion backlog, underscoring the sector’s long-run domestic and NATO-driven demand …