EUR 850.00 For Business Accounts Only

Morningstar | Thales Reports Stellar Sales and Order Intake in 3Q

Thales reported excellent third-quarter sales of EUR 3.4 billion, up almost 10% year over year organically, due to strong project execution at the transport segment (sales up 19%) and strong demand for aerospace products (sales up 8.8%, partly due to phasing effects). Additionally, the firm recorded an eye-popping level of orders in the quarter of EUR 3.1 billion, up 11% from a year earlier. These were driven by four large orders, including an amendment to the ESA and EUMETSAT satellite contract, an extension of a radio network contract in London, a new tranche of the largest European military radio programme CONTACT, and finally an additional service contract for British Army’s defence equipment. The reported sales and order numbers were in line with our expectations and showed the underlying strength of the business, in our view. We are updating our estimates to reflect this latest development, which could result in a modest increase (less than 5%) to our fair value estimate of EUR 107 per share. We maintain our narrow moat rating. Given recent strong share price gains, we believe Thales shares are slightly overvalued

We are pleased with another strong set of results in the transportation segment, where we expect sales growth and margin expansion due to reinforced governance in bid control and project execution by the new transport divisional (approximately 10% of Thales revenue) management team. Although margins will only be published at the second-half results, we believe sales growth of 21% in the first nine months of 2018 and astonishing order intake growth of 32% in the first quarter are clear indications that our thesis is playing out.

In our view, Thales will benefit from the strong upcycle of aircraft delivery due to leading positions in flight avionics and in-flight entertainment, particularly through increasing deliveries to Airbus. From 2017 to 2036, we forecast 38,726 jet aircraft deliveries globally, which is up slightly from our previous forecast of 38,310 (2016-34), owing primarily to a more bullish outlook in narrow-bodies (27,050 versus 26,308 last year), partially offset by a weaker outlook for wide-bodies (7,960 versus 8,135 last year) and regional jets (3,717 versus 3,867 last year).