Rheinmetall cuts revenue forecast after cancellation of F126 frigate orders

The adjustment affects the revenue outlook for the current fiscal year. The operating profit margin is also under pressure, as fixed costs from the shipbuilding program are difficult to reduce in the short term. Industry observers view the move as an acknowledgment that the delays and the definitive cancellation of the project will be reflected in the financial figures.

Market reaction

On the stock market, the shares initially reacted cautiously. The Rheinmetall share initially showed little reaction, but then lost 1.25 percent by the afternoon. The share thereby continued its downward trend of recent weeks. Traders pointed to the risks from the marine business now becoming more concrete, as well as to the uncertainty regarding possible compensation orders.

The background is the years-long struggle over the F126-class frigates. The program had made headlines due to technical problems and significant cost increases. Following a renewed review, the Ministry of Defense decided not to pursue the project further. As a result, Rheinmetall is losing one of the largest naval projects of the past decade.

Background: The frigate program

Analysts were cautious. Berenberg Bank had already pointed out the group's dependence on major Bundeswehr orders before the forecast revision became known. Other observers also see the marine business as a structural risk factor for future revenue development. At the same time, they pointed to the robust order situation in the land and munitions segments, which is likely to limit the impact of the loss.

It remains unclear to what extent Rheinmetall is examining potential claims for damages against the ministry. Should compensation for work already completed be negotiated, the financial burden could be reduced. Until then, shareholders must expect increased uncertainty about the further business development.

Possible compensation and outlook

Meanwhile, the question remains as to how the Bundeswehr intends to close its capability gap in the area of high-sea frigates. Both new procurement and stronger cooperation with European naval shipyards are being discussed. The German government has so far not publicly commented on a successor program.

For Rheinmetall, the decision means that a lucrative but also risk-laden business area is being eliminated. Group CEO Armin Papperger had previously positioned the marine business as a growth field. The company must now adjust its strategic planning and rely more heavily on existing pillars such as munitions, tanks, and aviation technology.

It remains to be seen on the market how investors will assess the upcoming quarterly figures. Should Rheinmetall be able to compensate for the loss through new orders in the army and air defense segments, the share price could stabilize again. Until then, the share remains a plaything of reporting on the F126 debacle.