Rheinmetall, Almonty Industries, Bayer AG - Arming up for defense with these stocks

EU supports Rheinmetall with over EUR 130 million for ammunition production

As part of the "Act in Support of Ammunition Production" ASAP of the European Union, Rheinmetall AG is receiving over EUR 130 million in funding to increase ammunition production. The European Union is supporting six projects in Germany, Hungary, Romania, and Spain. The corresponding agreements are expected to be signed in May 2024.

The ASAP instrument is intended to increase the manufacturing capacities of the EU defense industry in order to meet the growing demand for ammunition and missiles. In addition, the program aims to ensure the availability of raw materials and components, facilitate access to financing, mobilize private investment and eliminate production bottlenecks to shorten delivery times. It is, therefore, not surprising that the ASAP abbreviation is similar to the acronym "As Soon as Possible". In order for EU member states to be able to use their ammunition to support Ukraine and have sufficient stocks to reorder, they must be confident that EU producers will be able to meet demand in good time.

Armin Papperger, CEO of Rheinmetall AG, emphasizes: "The great importance of artillery is evident from Ukraine's defensive battle. We are grateful for the EU's confidence in Rheinmetall, one of Europe's most important suppliers of 155mm ammunition, to play a key role in the funding process." The planned capacity expansion should enable Rheinmetall to produce up to 1.1 million artillery shells, propellant charge modules and explosives annually by 2027.

**This funding comes at the right time for Rheinmetall. At the annual press conference on March 14, 2024 Rheinmetall, announced plans to build a new production facility in Lower Saxony to manufacture over one million projectiles, more than 1.5 million propellant modules and over 3,000 tons of explosives (RDX) annually. This project will create around 500 new jobs at the Unterlüß site and requires a total investment of around EUR 300 million. The new plant will strengthen artillery production and offer investors a medium-term potential of EUR 3.5 billion per year.

Almonty Industries: Seamless supply chains in tungsten production for defense

Regarding the supply chain security desired by the EU for the expansion of supply security, critical raw materials are required, which are used in the production of military defense weapons and equipment. **The metal tungsten is characterized by high hardness and high-temperature resistance. Its military uses include armor and artillery shells, grenades, bulletproof vehicles, armored tanks, artillery parts, weapons, and missile accessories. In the current geopolitical tensions, China stands out, in particular, as a tungsten producer. China is planning to lift import tariffs this year, which will likely mean the end of state subsidies for tungsten mines in China. As a result, the price is expected to rise and stabilize at a normal market level.

Companies like Almonty Industries, which specialize in tungsten mines in democratically run countries such as Portugal, Spain, and South Korea, are all the more valuable. With the EU deliberately using subsidies to produce ammunition for artillery in six countries, it is clear how valuable the timely provision and establishment of seamless supply chains have become, especially for defense. Almonty also already operates in two European countries.

CEO Lewis Black explains: "*In the 1950s and early 1960s, tungsten was more valuable than gold for defense. When the Cold War ended, stocks were depleted, and the capacity to produce ammunition was essentially neglected, except in South Korea, which had this capacity. This is just one of the reasons why South Korea has risen in the defense contract manufacturing rankings, but defense has created an unusually tense geopolitical situation. *Tungsten has a firm place in industry and technology, but ultimately, this tension is now putting significant pressure on the supply of tungsten."**

Due to international geopolitical tensions, extraordinary defense spending is expected in the EU, Japan, South Korea, Australia, the US and Canada. All of these governments are placing extreme emphasis on renewing their outdated military approaches. Black is convinced that this demand will impact the price of tungsten. So investors who may not want to invest in the end product but in the raw material should take a closer look at Almonty Industries.

In the midst of a turnaround: Bayer sees blockbuster potential in cancer drug Nubeqa

Bayer expects its cancer drug Nubeqa to generate billions in sales for the first time this year and believes it is well positioned in the pharmaceuticals business despite the setback in Asundexian (for the prevention of ischemic stroke). Nubeqa is for men who are affected by prostate cancer and whose cancer has not yet spread. The drug acts like an upgrade of the body's internal defences. "We have significantly increased the value of our pipeline," says Stefan Oelrich, Head of Pharmaceuticals, at the Company's annual press conference. "At the same time, we continue to expand our presence in key therapeutic areas and are making great progress in maximizing the potential of our newly launched products."

The prostate cancer drug Nubeqa is expected to achieve blockbuster status in 2024. Last year, sales of the drug already rose sharply to EUR 869 million (2022: EUR 466 million), making it the Leverkusen-based company's fourth best-selling pharmaceutical product.

The turnaround of the sluggish corporate tanker, for which CEO Bill Anderson is currently responsible, may take several years. Bayer is struggling not only with a falling stock market value but also with declining returns and financial strength. The core areas of pharmaceuticals and agrochemicals, in particular, are lagging behind the competition in terms of margins, as shown by the Handelsblatt balance sheet check.

To reduce the high level of debt, currently EUR 34.5 billion, Bayer needs better performance from these two main business areas to generate sufficient liquid funds. Another acute problem is the possible downgrading of Bayer's credit rating, which would make refinancing considerably more expensive in a phase of high interest rates. Cancelling the dividend is only the first step in avoiding this scenario.

Anderson continues to wield the budget-cutting knife: the in-house consulting firm "Bayer Business Consulting" will be closed by the end of the year, resulting in about 200 job losses. The management team of the Pharmaceuticals division will also be halved. From now on, 5 managers will head the business unit instead of 11. The restructuring is part of the new "Dynamic Shared Ownership" (DSO) strategy. Anderson has the backing for the sweeping budget cuts from one of the three major shareholders, Harris Associates. The investor holds 29.8 million shares (3.04% stake). The leading investors are Blackrock with 60.4 million shares (6.15% stake in total), Temasek Holdings (3.47% stake) and Amundi Asset Management (3.12% stake).

The EU is funding Rheinmetall with over EUR 130 million for ammunition production to increase production capacities. The funding will enable six projects in Germany, Hungary, Romania and Spain, which are expected to be signed in May 2024. Rheinmetall is well-positioned thanks to the funding and plans to build an ammunition plant in Lower Saxony independently of the EUR cash injection. Almonty Industries, a tungsten mining company, offers seamless supply chains for defense, which is crucial given the growing demand for ammunition. The lifting of Chinese import tariffs on tungsten could lead to rising prices, which once again underlines the importance of secure supply chains in Europe, such as those offered by Almonty Industries. Bayer AG expects its cancer drug Nubeqa to generate billions in sales for the first time and is in the midst of a turnaround. CEO Bill Anderson is cutting and streamlining the Company where he can in order to improve financial stability and strengthen competitiveness in the core areas of pharmaceuticals and agrochemicals. Defense, whether at national borders or in the body's own immune system, remains an exciting investment topic.