FRANKFURT (dpa-AFX Broker) - A surprisingly weak operating result and a disappointing cash inflow in the first quarter put Rheinmetall shares under pressure on Thursday. Investors, who had recently become accustomed to share price increases, dumped the stock.

Around midday, it was among the four weakest stocks in the moderately declining Dax, down 2.8 percent to 260.80 euros. The stock is well supported by the 50-day moving line, which signals the medium-term trend and runs just below 260 euros.

Driven by rising armaments investments, Rheinmetall stock also continues to be the best performer in the 40-stock benchmark index, having gained a good 40 percent since the beginning of the year. Just a month ago, the share price reached a record high of just over 280 euros.

The situation is similar for the MDax-listed share of radar and sensor technology specialist Hensoldt, which also climbed to a record high last month. With a plus of a good 42 percent since the beginning of the year, it is also one of the most sought-after stocks in the mid-cap index.

Now it has been dragged down by Rheinmetall's quarterly report. The share lost 6.5 percent to 31.46 euros. Regarding Hensoldt, a trader also pointed out that CEO Alessandro Profumo of Italian defense group Leonardo, which holds a 25 percent stake in Hensoldt, ruled out that Hensoldt could buy the company's defense electronics division.

Looking at Rheinmetall, numerous analysts criticized the company's quarterly operating profit (Ebit), which fell well short of expectations, "even though Rheinmetall had indicated relatively weak results in advance," such as Alexander Wahl of Stifel Europe wrote.

George McWhirter of Berenberg Bank criticized not only the operating result, but also the free cash flow, which is of particular concern to shareholders. Above all, this and the failure to raise the annual targets are likely to be a burden, he suspected. While the average analysts' forecasts are already slightly above the previous annual targets, Rheinmetall is sticking to them. However, with a view to the weak first-quarter result, he remains relaxed and pointed out that the second half of the year is traditionally much stronger than the first due to seasonality.

Stifel analyst Wahl takes a different view, saying that after the weak quarterly result and the maintained full-year forecasts for sales and adjusted EBIT margin, a "significant margin improvement is required in the three coming quarters." In order to achieve the midpoint of the sales forecast and a margin of 12 percent as projected by the group, Rheinmetall would need to achieve year-on-year sales growth of around 19 percent and a margin of around 13.5 percent in the nine months to the end of the year, he wrote, recalling the reported comparative margin of just below 13 percent in the corresponding nine-month period of 2022. As a result, analysts and investors would now expect business to accelerate for the remainder of the year./ck/ajx/jha/

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