Hopes for a ceasefire in Ukraine are currently influencing not only politics but also the stock markets. While a possible peace plan is being negotiated at the highest level in Berlin, defense stocks are coming under short-term pressure. Investors are pricing in a scenario in which the military escalation subsides. However, looking beyond the daily headlines reveals a different picture. Regardless of the outcome of the Ukraine summit, Europe is facing a long-term security policy realignment, with permanently higher defense spending. For the defense industry, this means short-term volatility, but attractive prospects for investors in the medium to long term.
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Rheinmetall – Correction exaggerated?
According to Steve Witkoff, special representative of the US delegation, “great progress” has been made with regard to peace in Ukraine. As a result of this positive news for all, defense stocks took a hit, led by German flagship Rheinmetall, which suffered a daily loss of around 3 per cent to EUR 1,570 on Monday. The 200 EMA is close to this level. If it breaks downwards, the next broader support would be in the EUR 1,400 range.
In the long term, however, analysts expect the Düsseldorf-based company’s share price to continue to rise. According to Bernstein, the stock is now trading “close to a bear market.” For analyst Adrien Rabier, however, this is not a warning sign, but an opportunity. He upgraded the stock from “Market Perform” to “Outperform”. The approximately 20 per cent correction has left behind “an exceptional company with a normal valuation,” while the market is now pricing in an “excessively pessimistic scenario.”
However, the expert emphasizes that little has changed in terms of fundamentals. European countries continue to rearm, led by Germany. According to information from parliamentary circles, the budget committee could approve arms orders worth EUR 52 billion as early as next week. “Germany plans to build the strongest army in Europe, and Rheinmetall is likely to take advantage of most of this opportunity,” said the Bernstein analyst.
Morgan Stanley also lists Rheinmetall as its top pick in the European defense sector and sees upside potential of more than 50 per cent within 12 months. The bank points to a seasonally strong recovery in the first half of the year and a valuation that is not excessive despite the share price doubling since the beginning of the year.
Strategically, Rheinmetall is also working on strengthening its European positioning. According to Bloomberg, CEO Armin Papperger is considering closer cooperation with KNDS in order to consolidate the fragmented tank industry.
Almonty Industries – No tungsten, no rearmament
Without critical raw materials, rearmament is hardly conceivable. Modern weapon systems, precision ammunition, semiconductors, and space technology require metals such as rare earths and, above all, tungsten. The West’s dependence on China is particularly evident when it comes to this strategic raw material. While many countries are massively increasing their defense budgets, security of supply is becoming a bottleneck. It is precisely in this exceptional situation that Almonty Industries (TSX:AII) , which positions itself as a Western alternative, is coming into focus.
The tungsten market is undergoing a period of profound change. China, which has been responsible for over 80 per cent of global production to date, has recently further restricted exports. The spot price has now risen to over US$800 per MTU, and Almonty CEO Lewis Black even considers US$1,000 to be realistic. At the same time, Chinese mines are coming under increasing pressure as government subsidies expire and many facilities are technically obsolete.
Almonty is benefiting from this development in several ways. With mines in Portugal, South Korea, and the US, the Company is becoming by far the largest Western tungsten producer. The Sangdong project in South Korea is particularly advanced and is about to begin commercial production. At the same time, Almonty is expanding its presence in the US with the Gentung Browns Lake project in Montana, a site with existing permits and infrastructure that is expected to start production in 2026.
Almonty recently strengthened its capital base for financing. The latest capital increase raised a three-digit million amount, with dilution remaining below 10 per cent. The funds will be used to expand projects in the US, Portugal, and South Korea. Management therefore considers the Company to be fully financed.
Almonty is already profitable at tungsten prices of around US$300 per MTU. Analysts have so far been calculating with significantly lower prices than those currently achieved on the market. On this basis, Cantor Fitzgerald sees a price target of US$10. Should the higher price level become established, this is unlikely to be the last word.
Theon International – Historic order
Even if the long-awaited peace in Ukraine should come about, this event should not herald the end of the turning point. Armament in Europe is likely to reach a new level in the coming years. In addition to well-known suppliers such as Rheinmetall, Hensoldt & Co., companies outside the familiar heavyweights are also benefiting.
Theon International, Europe’s largest supplier of night vision devices, recently secured the largest single order for night vision devices in NATO history in Europe. The Organisation for Joint Armament Cooperation (OCCAR) awarded a contract worth around EUR 1 billion to equip the armed forces in Germany and Belgium.
The Cypriot company, valued at EUR 2.3 billion, has established a leading market position in portable night vision technology in recent years. Its portfolio includes binoculars, monoculars, weapon sights, and vehicle mounting systems. The new contract covers the delivery of around 100,000 night vision devices. Delivery is planned for the period from 2026 to 2030, with the largest volumes in 2028 and 2029. The total order backlog, including options, thus rises to around EUR 2.4 billion, ensuring high visibility of revenues over several years.
At the same time, Theon is raising around EUR 150 million through a capital increase to acquire a 9.8 per cent stake in French sensor specialist Exosens. Although this is likely to have a slight dilutive effect in the short term, it strategically strengthens the technological base. Berenberg analysts believe Theon is well-positioned to benefit from rising defense spending and above-average growth in the defense electronics market.
Politicians are sitting at the negotiating table and discussing key data for sustainable peace in Ukraine, causing defense companies to react with share price losses. However, an agreement is unlikely to bring an end to the arms race, which should benefit Rheinmetall and Theon International in the long term. Tungsten producer Almonty Industries is likely to become one of the beneficiaries of the defense race boom.
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