Rheinmetall, Hensoldt, Kleos Space - These stocks have the Ukraine perspective!

Rheinmetall - The fantasy seems endless

Rheinmetall has now gained over 100% to EUR 208.60. A revaluation was to be expected given the relatively dovish guidance of recent years. Like other companies in the armaments sector, Rheinmetall suffered from export restrictions on war equipment and, as a result, cut back its investments to a minimum.

A special EUR 100 billion budget for the German armed forces is now waiting to be allocated. In addition, Europe's governments are under enormous pressure to substantially expand their defense budgets, which have been shrinking for years. At the same time, they want to get their hands on the supply of high-tech equipment and weapons as quickly as possible. However, the defense sector, like many other industries, is still suffering from severe restrictions in the supply chains.

Following discussions with Rheinmetall management, the analysts at Berenberg venture a positive outlook and, as a result, raised the price target in the last Rheinmetall report from EUR 155 to EUR 215. The analysts expect a doubling of sales in German defense spending and consider the production capacities to be given. Moreover, with a current price-growth ratio (PEG) of 1, the stock is undervalued relative to the industry. So the fantasy in the defense stock seems to be there still, but Friday's price is already quite close to the 12-month target price. Only the technology in the share currently appears very overbought. Short-term profit-taking with a consolidation target of EUR 185 would therefore not surprise us.

Kleos Space SA - A good business model in the face of geopolitical instability

One would expect a veritable wave of orders at the current time for Kleos Space (KSS). With its business headquarters in Luxembourg, the high-tech Company puts satellites into orbit to record primarily maritime and land-based radio and motion activities from a distance and process them in a customer-oriented manner. All application areas are highly sensitive and require high-quality standards in terms of security and validity.

However, the Data-as-a-Service specialist announced a postponement of the third cluster in January; here, a further 4 satellites should have been launched. Those launches will now be made up in April. The Vigilance Mission satellite cluster, launched in June 2021, is currently being positioned and is expected to start generating revenue in April. The Patrol Mission cluster is now scheduled for re-launch in April 2022 using the SpaceX Transporter 4 rocket. A fourth cluster, the Observer Mission, is scheduled for launch later in 2022, which will give Kleos 16 satellites in orbit. Russia's recent invasion of Ukraine has led to a surge in requests for Kleos' RF data product.

In February, Kleos published its audited results for 2021, with a net loss reaching EUR 6.4 million, and full-year revenue was also low at EUR 125,000. According to an analysis by First Berlin, it is expected to rise to EUR 8.19 million in 2022 and climb above EUR 25 million by 2024. The EBIT margin could then also rise to well over 40%. Likewise, it was published that some contract extensions could be achieved with NATO countries. Kleos covers many topics from the defense sector and should be able to profit from the increased public defense spending.

After several months of consolidation, last week saw the first signs of life for the price in Australia. Both the price and the volume went up slightly. The share is now trading at around AUD 0.56 or EUR 0.37, 10% above its low for the year. With currently 177.6 million shares, the market capitalization is AUD 97.7 million. That brings the Company close to the AUD 100 million market value threshold, which should allow access to new customer groups. Kleos is a good addition to the portfolio in the current geopolitical environment.

Hensoldt - Electronic warfare is the order of the day

Another defense technology representative is the Munich-based Hensoldt Group. The specialist for radar and optoelectronic systems was created in 2017 from former business units of Airbus Defence and Space, formerly EADS. The product spectrum ranges from sensor technology to optoelectronic systems, avionics and electronic warfare. Its portfolio of services also includes data management, robotics and cybersecurity.

A Scandinavian country recently awarded Hensoldt a contract to supply 17 high-performance cameras for national border surveillance on land and at sea. The order is worth just under EUR 10 million according to the Company. Many European countries will likely order special equipment from Hensoldt in the coming weeks. From an investor's point of view, this raises the question of how the currently still low estimates of analysts will soon be adjusted upwards and how dynamic the next few years will be. In any case, a newly formed management board can now hit the ground running.

For 2022, experts recently expected sales of EUR 1.7 billion, rising to just under EUR 2.9 billion by 2025. That would bring the current P/E ratio down from 20 to around 10. According to the Company calendar, insight into the first quarter will be provided on May 5. At that time, the first estimates for an upward sales adjustment should also be fixed. The stock market is, of course, rushing ahead of the whole thing and has caused the Hensoldt price to explode by plus 115% since the beginning of February. The planned revenue is currently valued at 1.5 times, which is still manageable. The remaining 18% KKR stake could soon come back on the market after the rally.

Equity investing in times of crisis is marked by particular stresses and volatility. Sustainability and ESG criteria are often included as a requirement in investment guidelines for institutional investors. However, this prevents investment in defense stocks, even if the focus is on the defense sector. Rheinmetall and Hensoldt have nevertheless gained more than 100%, while satellite and data specialist Kleos Space has just started to climb.