Rheinmetall - Update 08/28/2026 - ISIN DE0007030009

00:00:07: A company has orders worth more than eighty billion euros on its books.

00:00:13: As of the end June, eight times it's last annual revenue.

00:00:17: and yet stock have fallen sharply since start year.

00:00:26: What are my missing?

00:00:33: The long one is the more interesting.

00:00:39: Because neither is new, both were laid out in the twenty-twenty five annual report—the tied up cash as well as risk that a big customer stops placing orders there for anyone to read.

00:00:52: But this highly profitable company misses our top mark and it isn't the fallen stock either.

00:01:00: A question runs through my entire report How can business be so strong?

00:01:05: and leave us in the dark precisely where we look most closely.

00:01:08: That sounds like a world-class foundation, with A Few Doors that Stay Locked!

00:01:13: For anyone hearing us for the first time I'm talking to Warren Wise an AI technology that analyzes and scores equity stories Like a value investor

00:01:23: Exactly...I am a synthetic stakeholder.

00:01:25: My thinking And my voice are AI.

00:01:28: Today's basis is my report on the Rhinemetal AG annual report for twenty-twenty five.

00:01:34: The report was published on March eleventh, Twenty-Twenty six assessed by me using the methodology of Benjamin Graham Warren Buffett and Charlie Munger.

00:01:44: And I'm Corey capitol.

00:01:45: also AI the voice of retail investors.

00:01:48: almost everyone has rine metal On their radar right now and after the rally Of the last few years.

00:01:54: many hold the stock to

00:01:56: and since we're often asked Every episode is selected, reviewed and approved by a human editorial team.

00:02:02: The analysis and the voices are AI—the responsibility is

00:02:06: not.".

00:02:06: So explain it to me Warren!

00:02:08: How can a company run like clockwork operationally?

00:02:11: And still miss the top mark?

00:02:13: To answer that Corey we're best off starting where Rhine Metal Is Truly Strong —The Business Model... ...and for that forget the tanks & headlines for now.

00:02:22: Picture a razor blade business instead.

00:02:25: A RAZOR BLADE

00:02:25: BUSINESS?!

00:02:26: At a defense company, you'll have to explain

00:02:42: that.

00:02:44: And because the ammunition has to fit this system... ...the customer keeps buying from the same supplier for decades!

00:02:50: To switch he'd have to re-equip an entire army

00:02:54: Exactly.

00:02:54: The switching costs are enormous, the switching risks high and then a second wall comes on top.

00:03:01: In Germany only those with estate license may produce weapons of war And there's no legal right to one.

00:03:08: The state decides who gets to play at all.

00:03:11: A new competitor can neither buy nor sue their way past that hurdle.

00:03:15: I see Switching cost plus a licensing hurdle together.

00:03:19: That is what you're talking about

00:03:22: And you see that moat directly in the numbers.

00:03:24: The weapons and ammunition segment runs an operating margin of almost twenty-seven percent, for an industrial business that's exceptionally high—that's almost software

00:03:33: territory.".

00:03:34: Almost twenty seven cents a profit per euro of revenue?

00:03:38: Yes!

00:03:39: That really is impressive margin... Twenty-twenty five

00:03:46: was a textbook year for Rhine metal.

00:03:48: Revenue grew by almost twenty nine percent to nine point nine billion euros, largely under its own power not through acquisitions.

00:03:56: Almost thirty percent growth and organic on top of that.

00:04:00: That's something to deliver.

00:04:01: first What does profit do in a year like?

00:04:04: It rises even more strongly By a good thirty two percent.

00:04:08: And here is the beautiful part Rhyne metal becomes more profitable with every additional billion in revenue.

00:04:15: Costs grow more slowly than the business.

00:04:17: Exactly, the leverage of value investor like you looks for Warren?

00:04:21: Yes exactly.

00:04:22: and if you want to see it a single number return on capital.

00:04:26: what the capital employed throws off in profit jumps from around twenty six two over thirty three percent.

00:04:32: Thirty-three percent.

00:04:34: that's kind of numbers you read twice.

00:04:36: make sure didn't misread.

00:04:38: And now comes the part that convinces me most as a value investor.

00:04:42: Because high profit is one thing, the decisive question whether it turns into real cash?

00:04:48: Does reported profit really land money in account or just booking item on paper?

00:04:54: At Rhinemetal it lands in the account.

00:04:56: operating cash flow was a good two billion euros – Real Cash.

00:05:02: And even after Rheinmetall invested heavily in new capacity, a free cash flow of a good one billion is left over.

00:05:08: And the balance sheet?

00:05:10: It flips completely.

00:05:11: in a single year from around €one point three billion of net debt to a net-cash position for completeness –a convertible bond of seven hundred million that turned into equity also helped.

00:05:23: but the core of the turn is earned

00:05:25: money.

00:05:26: The debtor has become a saver and orders aren't drying up either.

00:05:30: In twenty-twenty five, for every euro of revenue around two euros of new orders came in.

00:05:36: That much planning certainty for the years ahead is rare in capital goods.

00:05:40: And how was it today Warren?

00:05:42: How has cash flow developed lately?

00:05:44: and here you're already at The tipping point Corey.

00:05:47: because this very cashflow Was deeply negative in the first half Because they are building up inventory like mad to be able To serve future orders a tall but we have to separate cleanly.

00:05:57: those Are Today's numbers.

00:05:59: My report judges the twenty-twenty five financial year and even there, The same pattern was in the annual report.

00:06:06: The machine is strong but whether the record profit becomes real cash durably that's a truly open question.

00:06:13: Honestly up to here this all sounds more like the top mark.

00:06:16: Where exactly does Ryan Metal lose the point?

00:06:19: Not

00:06:20: where everyone is looking.

00:06:21: I assess eight dimensions And everywhere it about performance.

00:06:28: The money arrives, the balance sheet is clean.

00:06:31: Rheinmetall loses the point to very top in three places where company doesn't.

00:06:35: let us look-in at customers and research and risks.

00:06:40: And on capital deployment there's something more.

00:06:43: Rheinmetal is deploying its capital aggressively right now For instance with entry into naval shipyards without disclosing what that supposed bring.

00:06:53: But if these three place way so heavily Why doesn't the verdict slide straight to the middle?

00:06:58: Because blind spots are something different from findings.

00:07:02: My two counterchecks, for contradictions in numbers and typical warning patterns don't trigger.

00:07:08: so there's no suspicion only missing visibility.

00:07:11: And my scoring does not net strengths or weaknesses against each other.

00:07:15: As long as these three doors shut The door of top mark stays shut too.

00:07:21: Bottom line a four out five in which the value thesis holds.

00:07:27: So a really good rating, and The Three Locked Doors are exactly the distance to the top mark.

00:07:33: Very nicely put.

00:07:34: And it's exactly at these three doors that It now pays To look one by One.

00:07:39: Let start with First.

00:07:41: Concentration On the outside of the story is Three segments Broadly positioned The numbers tell A different tale.

00:07:48: The weapons and ammunition segment accounts for a good third of revenue, but for over half—namely, fifty-six percent —of the entire operating segment profit.

00:07:57: So half the profit hangs on a third of business?

00:08:01: That's rather less broadly positioned than it sounds!

00:08:04: True... And geographically you see that same pattern….

00:08:07: Germany's share of revenue rose to thirty eight per cent in twenty-twenty five plus almost four points in single year.

00:08:14: …so the dependence is even growing instead shrinking.

00:08:17: Right That's exactly the point.

00:08:19: And the largest customer, The German State alone accounts for almost four billion euros in revenue

00:08:25: and that closes the circle back to our opening.

00:08:28: This very customer just stopped a major frigate program

00:08:32: True!

00:08:32: And promptly.

00:08:33: Rhine Metal had cut its full year guidance by around three hundred million euros.

00:08:38: In the blade picture that means A single regular customer alone buys more than one third of all the blades and writes the house rules, too.

00:08:49: The same hand that signs the order and grants the export license can also pull the order

00:08:54: again."

00:08:55: And you just can't swap out a customer like when he gets uncomfortable?

00:08:58: Is this why you dock points on transparency as

00:09:01: well?".

00:09:01: The dependence alone is no verdict—the Order backlog is contractually secured with the state for years!

00:09:07: For me, the biggest issue was that next level is missing —how does rest of the customer base break down?

00:09:14: A picture of the three largest customers, for example simply doesn't exist.

00:09:18: Then let's move to the second door – Warren!

00:09:21: Rheinmetall likes to claim technology leadership.

00:09:23: Does research deliver on that promise?

00:09:25: The company cites a good four hundred million euros of development output for it around four percent of revenue.

00:09:32: but guess how much of that rhein-metal itself carries as its own research?

00:09:36: Well if you ask like that…three quarters?

00:09:39: About half Nearly two hundred million of it is customer-funded contract development.

00:09:44: And, if what Rhine Metal carries itself only a good one percent revenue reaches the profit and loss statement For company claiming technology leadership.

00:09:53: that's thin... ...and there was second catch how its booked.

00:09:57: What do you mean Warren?

00:09:58: A growing part of companies own developement costs doesn't land as an expense in the Profit & Loss Statement but is capitalized on balance sheet.

00:10:06: In twenty-twenty five that was around one hundred million after just under seventy the year before.

00:10:12: So for you, that's a warning sign?

00:10:14: Yes absolutely.

00:10:15: when you capitalize development costs You put today spending into a drawer labeled investment

00:10:21: and That then means this years profit looks nicer as a result.

00:10:25: The bill only comes later at some point As depreciation.

00:10:29: And they apply This approach of all Years in A record Year.

00:10:34: Exactly Corey.

00:10:35: To be fair, one has to add they're not researching less on the contrary.

00:10:40: But the more of the development costs migrate to the balance sheet The more it flatters the current result.

00:10:47: and that's exactly the kind Of detail you have to keep an eye On when it comes to earnings quality.

00:10:52: Are there More details of this sort?

00:10:54: One more Rhine metal sold a shareholding And left the profit from It.

00:10:58: forty six million euros in the operating Result.

00:11:02: burdens, by contrast are consistently stripped out as special effects.

00:11:07: So what makes the picture nicer stays in?

00:11:10: What makes it uglier gets adjusted out.

00:11:12: That's exactly the tilt.

00:11:13: I mean all legal or disclosed.

00:11:16: but anyone reading The Adjusted Margins should know which direction the adjusting goes here.

00:11:21: a quick word In our own interest since It fits!

00:11:24: What you're hearing is the short version.

00:11:26: the full worn wise report checks an equity story across eight dimensions page by page against the annual report.

00:11:34: Anyone who wants that view for their own company, on-the-board, The Supervisory Board or in investor relations warren dash wise dot com.

00:11:44: so and now back to Ryan metal

00:11:46: yes And at the same time two our sharpest finding.

00:11:49: first the positive Rhine Metal lists sixteen material risks cleanly each with concrete countermeasures.

00:11:56: That's solid craftsmanship.

00:11:58: but then comes the decisive question And go ahead, guess again how many of these sixteen risks are also quantified in euros concretely?

00:12:07: With sixteen risks half maybe eight.

00:12:10: Zero of sixteen at a company with almost ten billion in revenue.

00:12:15: not a single corridor no range nothing.

00:12:17: and with us the principle holds what isn't disclosed.

00:12:21: we don't charitably estimate up We count it as a gap

00:12:25: In our blade picture.

00:12:26: that's the warehouse they simply won't let us look into.

00:12:29: And there was that second thing I noticed, those billion-euro guarantees.

00:12:33: Yes at their core commitments to the federal government for a major order.

00:12:38: The technical term is letters of comfort.

00:12:40: and they more than doubled in a single year To five point seven billion euros.

00:12:45: Five point seven Billion That's roughly as much equity... ...and whole things.

00:12:50: it completely off balance sheet

00:12:52: Industry typical?

00:12:53: Sure But its an obligation that swelling strongly and in a world where that same-state customer is cancelling programs right now, as an investor you want to know quite precisely what commitments are actually sitting off the balance sheet.

00:13:06: And when you put it all together... What does this mean for your verdict?

00:13:11: This is about more than formalities.

00:13:13: The foundation is strong No question But I simply cannot check if one of these sixteen risks materializes.

00:13:21: The story isn't refuted by that It's unproven.

00:13:25: As

00:13:26: a shareholder, I mainly see one thing though.

00:13:29: The dividend is rising strongly.

00:13:31: that surely speaks for the company doesn't it?

00:13:33: At first glance yes up forty two percent eleven euros fifty per share.

00:13:38: but It also depends crucially on how you calculate.

00:13:41: Wait!

00:13:41: How You

00:13:42: Calculate?!

00:13:43: A payout ratio Is a Payout Ratio?

00:13:45: Precisely not and That's the catch.

00:13:47: if the Company takes its adjusted result as the basis it lands at around forty five percent.

00:13:53: If instead you take the group profit that really belongs to shareholders, it's suddenly almost seventy-six.

00:14:00: Forty five or seventy six depending on the denominator?

00:14:03: That is a huge difference!

00:14:05: Indeed and the self set target range was originally thirty-five to forty.

00:14:10: And Is that an outlier Or A Direction

00:14:13: More direction?

00:14:14: In three years The dividend has almost tripled.

00:14:16: Earnings per share grew less than half as strongly in same period.

00:14:20: The payout is Outrunning the Profit.

00:14:22: I get it.

00:14:24: At its core, you're not criticizing the level itself but that the basis doesn't stand cleanly alongside it right?

00:14:31: Exactly Corey Free cash flow comfortably covers the dividend twice over.

00:14:35: That's Not The Issue.

00:14:37: If both numbers stood openly side by side i could place It if only one is there You Ask Yourself Why.

00:14:43: And There Is One Last Contradiction.

00:14:45: You Noticed

00:14:51: Vehicle systems, with around half of revenue is by far the largest segment but earns only a good ten percent operating margin.

00:15:00: That's less than half what the ammunition division throws

00:15:02: off.

00:15:03: And here's my big question to management from a retail investors view if your largest segment structurally lags How do you reach your Big Margin target?

00:15:12: By twenty thirty?

00:15:13: Yes The Target has over twenty percent group margin after all.

00:15:17: In my view, either the vehicle division would have to catch up massively or ammunition would become even more dominant.

00:15:24: But both would shift profile even further toward concentration – one shouldn't forget that!

00:15:30: On top of that… The revenue target is also very ambitious – fifty billion in revenue by twenty-thirty?

00:15:36: That'd be more than a fivefold increase.

00:15:40: The order backlog gives planning certainty, no question.

00:15:44: But every program cancellation like now with the frigates gnaws exactly at the fifty billion

00:15:49: target.".

00:15:50: And how reliable have such announcements been so far?

00:15:53: Mixed.

00:15:54: Rhinemetal beat its original guidance for twenty-twenty five —the growth range it raised again in December by contrast—it narrowly missed.

00:16:03: Whoever raises the targets also raises the bar and the fifty million will be measured against that too.

00:16:09: If the board

00:16:10: were sitting here with us, what would it have to answer you?

00:16:13: Of the roughly twenty questions in my report at the core.

00:16:16: It comes down two three things Corey.

00:16:19: first quantify your top risks in euros.

00:16:23: zero of sixteen is not a standard that fits your size.

00:16:26: second disclose Your Three largest customers and tell us how much of the order backlog hangs on The biggest contracts.

00:16:34: And third Name a concrete, dated synergy value for the billion-euro takeover of the naval shipyards.

00:16:40: If you deploy capital that aggressively I expect more information

00:16:44: here.".

00:16:45: Three clear questions and none is an accusation.

00:16:54: And now we have to say one thing very clearly precisely because we opened with a crash isn't this?

00:17:00: four despite

00:17:04: No, and just as little is a weak rating would be a cell signal.

00:17:08: That's a methodological limit not a cautious opinion.

00:17:11: our score assesses the story.

00:17:13: A company tells about its own future And the numbers that have to carry that story.

00:17:18: The share price doesn't appear in our report with a single syllable.

00:17:21: So In short quality of the equity store checked Price?

00:17:25: Not

00:17:26: Exactly.

00:17:27: An excellent Company can Be a bad stock if you pay too much for it And conversely, a mediocre one can be worth it if its cheap enough.

00:17:35: That's precisely why a value investor looks more closely when the quality is checked and price falls – that stock has fallen changes nothing about the four.

00:17:44: And what would have to happen for this four move?

00:17:47: Up or down?

00:17:48: Upward!

00:17:49: Concretely quantified risks A disclosed customer structure A soundly justified capital deployment.

00:17:56: Then The Four becomes a five.

00:17:58: Downward if cash flow tips away durably or the concentration keeps increasing.

00:18:03: Before you sum it all up, what do I take with me as an investor into next set of accounts no matter which company is in front of me?

00:18:11: I'll give three check rules.

00:18:13: first when a company says broadly positioned never look only at revenue but always where profit actually comes from.

00:18:22: second arising capitalization rate of all years in a record year is a warning sign for earnings quality.

00:18:30: And third, risks that don't stand next to a euro figure you can check.

00:18:35: count the silence as a gap not an all

00:18:38: clear.".

00:18:52: This here is a real money printing machine with the big moat.

00:18:55: The razor blade principle plus a licensing hurdle.

00:18:58: almost no one clears, A return on capital of over thirty percent doesn't lie.

00:19:03: but a strong foundation only becomes top mark when it also shows itself where its gets uncomfortable at risks and customers at capitol deployment.

00:19:13: So the fortress stands!

00:19:14: The real question is whether they'll ever.

00:19:17: let us look behind all walls too.

00:19:19: Very apt.

00:19:20: If Rheinmetall opens these doors, the four becomes a five.

00:19:24: And until then it stays... A world-class foundation with few doors that remain locked!

00:19:30: We'll stay on it… Until next.

00:19:32: deep dive and if you don't want to miss any company analysis drop by warren-wise.com and subscribe our podcast.

00:19:41: I wish your fine rewarding day.

00:19:43: always remember be wise when others go crazy.

00:19:48: Your Warren Wise.

00:19:51: The content of this episode is for general information purposes only.

00:19:58: It does not constitute investment advice or a solicitation to buy, hold and sell financial instruments.

00:20:06: All assessments are based on model-based AI supported analytical approach.

00:20:12: Warren Wise is fictional synthetic character.

00:20:16: neither real person nor their estate nor company affiliated with such persons where reference is made to Benjamin Graham, Warren Buffett or Charlie Munger.

00:20:26: This has done purely descriptively

00:20:29: with

00:20:29: regard the investment philosophies attributed to them.

00:20:33: There's no endorsement authorization representation of other connection including their estates affiliated companies.

00:20:42: All voices and audio content in this episode are synthetically generated an AI created.