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February 25th, 2022 | 07:58 CET

Rheinmetall, Diamcor, Hensoldt - The scenario escalates

  • Diamonds
  • armaments
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All the diplomatic attempts to resolve the situation in Ukraine peacefully have failed. Russia is already in eastern Ukraine with its troops, and the police are reporting fighting throughout the country. In his televised speech launching the war against Ukraine, Russia's President Putin threatens the West with a massive counterstrike. The markets fall into deep red territory. By contrast, the defense industry is benefiting alongside precious metals and oil. Orders should thus continue to rise over the next few years. After the expected sanctions, energy prices are also likely to explode, so there is no end in sight to the inflationary spiral.

time to read: 4 minutes | Author: Stefan Feulner
ISIN: Diamcor Mining Inc. | CA2525312070 , HENSOLDT AG INH O.N. | DE000HAG0005 , RHEINMETALL AG | DE0007030009

Table of contents:

    Real assets in demand

    The Corona pandemic hit the diamond industry hard: Closed stores, travel restrictions and economic uncertainty resulted in global sales of the precious stones plummeting 15% to USD 64 billion in 2020. At the same time, prices fell by 11% for rough diamonds and 3% for polished stones. However, there was already a clear rebound effect here last year, with demand fueled in particular by the jewelry industries of India, China and Arab countries. The growing inflation and the lack of suitable alternatives of investment in tangible assets, for example real estate investments are already considered overheated, are reasons that the price of the gemstone is likely to rise further in the future due to increasing demand. On the other hand, supply is severely limited, many mines are already fully exploited, and new mineral resources are no longer being found to the extent required.

    Sweet spot in South Africa

    The exploration company Diamcor secured one of these scarce projects back in 2011. The Canadians acquired the Krone-Endora at Venetia Project from De Beers, consisting of mining rights to Krone 104 and Endora 66 farms, representing a combined area of approximately 5,888 hectares and directly adjacent to De Beers' flagship Venetia diamond mine in South Africa. The deposits at Krone-Endora are in two layers with a maximum total depth of approximately 15m from surface to bedrock, providing very low-cost mining with the potential for near-term diamond production from a known high-quality source. Krone-Endora also benefits from the infrastructure and services already developed due to its location adjacent to the Venetia Mine. Since then, Diamcor has been able to increase processing volumes steadily. The continued focus remains on optimizing processing volumes and recoveries based on Phase 1 upgrades for the current quarter.

    Successful development

    The positive performance was evident in the first offering of 2022. In the first tender and sale of the current quarter, which took place in February, the Company offered and sold 3,062.53 carats, generating gross revenue of USD 1,010,406.65, representing an average price of USD 329.93 per carat. CEO Dean Taylor expressed confidence, "We are very pleased with the results of our first tender and our first sale in 2022, confirming both the quality of our diamonds and the strength of the buyers in our bids, which were conducted jointly with Koin International in Dubai in the UAE."

    Record results and bright prospects

    Integrated technology group Rheinmetall has a long history behind it. The Düsseldorf-based MDAX-listed Company became known, of course, for manufacturing weapons for the defense industry. But Rheinmetall has a much broader base. Already last year, a strategic realignment of the Group was announced, which is now visible, among other things, in a changed Group structure. The former Rheinmetall Group with two corporate sectors, Automotive and Defence, is being transformed into an integrated technology group divided into five divisions. One of the aims of this new structure is to facilitate an accelerated technological exchange between the five divisions. The five divisions are divided into Weapon and Ammunition, Electronic Solutions, Vehicle Systems, Sensors and Actuators, and Materials and Trade.

    The reorganization resulted in record earnings, as shown by the preliminary figures. Thus, an operating profit of EUR 595 million was achieved in fiscal 2021, beating the previous year's figure by EUR 149 million or around 33%, as well as analyst estimates. With this record result, the Rheinmetall Group is expected to achieve an operating profit margin of 10.5% in fiscal 2021, above the most recently forecast margin of around 10%. At 4.7%, sales growth was below the overall forecast. That was again due to the shortage of raw materials and semiconductor components, which will lead to shifts into the next quarter. In the wake of the widening of the Ukraine crisis, Rheinmetall's share price benefited and shot above the EUR 100.00 mark with a jump of 4%. The next target is the all-time high of EUR 119.36. If the conflict in Ukraine continues, Rheinmetall should continue to perform well in order intake and positive share price performance.

    Hensoldt profits

    The armaments group, Hensoldt from Taufkirchen, climbed significantly further, namely by more than 11%. It was created in 2017 by former Airbus Defence and Space business units for sensor technology in the areas of defense, security, aerospace and aviation. Its main product areas are radars and optoelectronic systems, electronic warfare and avionics.

    Similar to Rheinmetall, Hemsoldt also presented strong annual figures. Sales rose by 22% YOY to just under EUR 1.5 billion. In addition, the Company succeeded in moving into the profit zone. Thomas Müller, CEO of Hensoldt, forecasts further growth for the new year. Sales are expected to climb to around EUR 1.7 billion. Adjusted operating profit is estimated at between EUR 285 million and EUR 300 million. The high order backlog of EUR 5.1 billion shows that this is achievable. Compared with the same period of the previous year, this is almost 50% higher.

    The Ukraine conflict appears to be escalating, sending stock markets tumbling. Profiteers are defense companies such as Rheinmetall and Hemsoldt. In the wake of a further expected rise in inflation, investments in tangible assets such as diamonds make sense. Diamcor appears promising.

    Conflict of interest

    Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.

    In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.

    For this reason, there is a concrete conflict of interest.

    The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.

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    Der Autor

    Stefan Feulner

    The native Franconian has more than 20 years of stock exchange experience and a broadly diversified network.
    He is passionate about analyzing a wide variety of business models and investigating new trends.

    About the author

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