Morningstar | Thales 1Q Orders and Sales a Little Shy of Consensus but Enough to Cause Concern
Thales first-quarter orders and revenue was a little shy of consensus, declining by 25% and 2% respectively, sending the shares trading down moderately. The big drop in the order intake was because of larger orders in first quarter 2018. Smaller and medium-sized orders (those up to EUR 10 million) increased by 3%. Excluding the EUR 855 million air traffic control system order booked in 2018, the order intake increased by 4%. We expect growth to improve in the second quarter with year-over-year comparables becoming easier. We are maintaining our narrow moat rating and EUR 107 fair value estimate. Shares look fairly valued.OneSky's order was booked in the largest division, defence and security during 2018, and excluding this contract the orders in this segment grew by 44% in the first quarter of 2019. The aerospace division posted an 11% decline in orders after weakness from military customer orders, in-flight simulation and other training and simulation. The transportation segment also booked larger orders in the quarter a year ago, in Poland and Norway, leading to this quarter's orders being down 49% year over year.
Larger orders cause fluctuations in the quarterly order and sales growth. However, given the company continues to book larger orders that can be executed over several years, we do not believe the quarterly results should be viewed as a measure of underlying demand for the company's products and services.
Thales is an electronics and systems group, serving defense, aeronautics, transport, space and security markets. Co.'s operations can be divided into four operating segments: Aerospace (Avionics, Space), Transportation (Ground Transport Systems), Defence & Security (Secure Communications & Information Systems Land and Air Systems, Defence Mission Systems), and DCNS. Co. designs and delivers systems for all four environments: air, land, sea and space. These systems detect and assess threats, manage information, support command decisions and control engagements through to threat neutralization. Co. is active in ground transportation; air transport; navigation systems.
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