Rheinmetall Drops 17% as Germany Scraps F126 Frigate
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- Rheinmetall fell as much as 17.3% in midday trading — on track for its worst day since 1989 — after reports Germany will abandon the F126 frigate program, a deal worth up to €12.8 billion that would have been the biggest warship commission since WWII.
- TKMS rose 15% on news it will instead build eight smaller Meko A-200 frigates for Berlin, taking over the contract from Dutch shipyard Damen Naval after years of delays on the F126 program.
- Other European defense stocks also declined: Hensoldt dropped 5.1%, Renk 5.8%, Saab 3.5%, Leonardo 4.4%, and BAE Systems 1.2%, while the Stoxx Europe Aerospace & Defense ETF slipped 1.9%.
- Rheinmetall was already down roughly 30% from January highs heading into Wednesday, with broader European defense sentiment soured by investor concerns over the prospect of wars in Ukraine and the Middle East ending and doubts over how much government spending will materialize.
- Citi analyst Charles Armitage predicted Rheinmetall's naval business will reach only half its €5 billion 2030 target because of the F126 loss; he reiterated a Buy rating, saying the news "takes some froth out" but valuation is "not frothy."
- Germany is separately planning a 40% stake in tankmaker KNDS, due to IPO soon, alongside France, as part of its pledge to build the "strongest conventional army in Europe" by 2039 — with NATO allies having agreed a year ago to lift defense spending from 2% to 5% of GDP by 2025.
Why it matters: Rheinmetall's worst trading day since 1989 signals investors are repricing Europe's defense boom: the F126 loss cuts Citi's forecast for Rheinmetall's naval revenue to half its €5 billion 2030 target, while redirecting the work to rival TKMS. With Rheinmetall already down 30% from January highs and sector sentiment soured by doubts over whether spending pledges turn into real contracts, the episode tests whether Europe's defense rally has real earnings behind it.
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