October 10th, 2022 | 13:33 CEST
High voltage is the order of the day here: Rheinmetall, Hensoldt, Kleos Space, and Kion under power!
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Born in Munich, he first studied economics and graduated in business administration at the Ludwig-Maximilians-University in 1995. As he was involved with the stock market at a very early stage, he now has more than 30 years of experience in the capital markets.
Kion - Analysts turn positive
Disruptions in supply chains and significantly increased costs for materials, energy and logistics are currently weighing heavily on forklift manufacturer Kion. The MDAX-listed group expects a loss in the low three-digit million range in Q3 due to increased costs in the project business. The crux of the matter is delivery commitments. Kion, like other manufacturers of industrial products, has fixed customers and negotiated prices that cannot be passed on directly at this speed and level of increase in the cost of input factors.
Meanwhile, the Company was well-positioned during the Corona Crisis, as the rapid growth of online commerce had many companies pouring copious amounts of money into expanding and automating their warehousing and delivery operations. However, the boom now seems to be over for the time being, as extreme inflation is shrinking order books and putting pressure on the former crisis winners.
Since Kion's share price has now plummeted by 80%, many analysts are taking a closer look. Should a price rollover to a still growing demand take place in 2023, the balance sheet picture at Kion could also quickly turn around again. Berenberg, Baader, JPMorgan and UBS see positive signs and vote with buy or overweight. Although the price targets are drastically reduced - e.g. at UBS from EUR 75 to EUR 29 or Baader from EUR 65 to EUR 40 - the medium-term positive view gradually prevails. Currently, Kion is still walking a fine line between short-term risks and structural opportunities. If the economy slumps sharply, the lean period for shareholders will likely last a while longer.
Kleos Space SA - The next stage takes off
On the other hand, the prospects for Kleos Space SA (KSS) look promising. After all, in geopolitically uncertain times, information and intelligence are key assets for strategic decision-making, both in the private sector and for governments. The high-tech company, which has its business headquarters in Luxembourg, puts satellites into orbit to remotely acquire primarily maritime and land-based radio and motion activity and to process it in a high-quality, customer-oriented manner. Equally important is the analysis for the fight against climate change here, e.g. to detect steppe and forest fires, changes in water levels and illegal waste burning. The importance of space-based data and technologies is growing in this context.
Currently, Kleos is in the process of installing its next stage of satellite clusters. Under the project name "Observer Mission (KSF3)", all test phases for environmental compatibility and technical functionalities have now been completed. The next SpaceX mission, Transporter-6, is scheduled to go into orbit from Cape Canaveral. In the meantime, Kleos has concluded an initial contract with the National Reconnaissance Office in Virginia. The US agency is part of the Department of Defense and represents an excellent reference for Kleos.
With increasing data acquisition capacity by another 119 million sq km, the DaaS provider can enter the ring for further lucrative major contracts in the future. The KSS share is currently trading in a narrow range between AUD 0.30 and AUD 0.38, with the market capitalization adding up to a low EUR 41 million. For risk-conscious investors, Kleos Space is an outstanding diversification opportunity in the high-tech sector.
Hensoldt and Rheinmetall - The big rally is over for now
With the start of the Russia-Ukraine invasion, a lot of investment capital shifted towards defense stocks. Governments worldwide are primarily trying to absorb the humanitarian catastrophe, yet the supply of modern defense technology has also become a fixed spending plan. In Germany, a special EUR 100 billion budget was created for the German Armed Forces, which has now ensured steady orders from the public sector to private high-tech companies such as Rheinmetall and Hensoldt for years to come. But not every order can be processed easily in an environment of scarce raw materials and rising procurement prices. Nevertheless, the stock market has given the shares in question much advance praise, with Rheinmetall and Hensoldt, in particular, gaining more than 150% at their peak. For some weeks now, however, disillusionment has been setting in because profits are not going to skyrocket even in the armaments sector.
In the last 8 months, the Hensoldt share rose from around EUR 12 to EUR 32 and then fell back to below EUR 20. Currently, five analysts still recommend buying the stock, with a median price target of EUR 26.72. Fundamentally, the consensus expects sales to increase by up to 20% per year, as well as operating profits. The price-to-sales ratio (P/S) is around 1.4. Rheinmetall rose from around EUR 90 to EUR 227 in the same period, slightly less than Hensoldt, but YOY it remains a solid gain of 81%. Ten different experts see a median price target of EUR 196.67, which would be a premium of 28%. P/S and P/E ratios are relatively low at 1.3 and 14.7, respectively, while the dividend yield promised is decent at 2.6%.
Even though the big rally is probably over for both stocks, they have good growth potential in the current waters. However, a sudden end to the war could put the shares under pressure again. But that would be a good opportunity to enter the market, as the defense budgets of all European governments are expected to increase.
Industrial and defense stocks suffer equally from exploding manufacturing costs. Careful calculation or contractual price index escalator clauses are essential. In the case of bombed-out stocks, it is also necessary to check whether the business model still works. Rising defense budgets continue to provide excellent growth opportunities for Rheinmetall, Hensoldt and Kleos Space.
Conflict of interest
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