We Increase Thales’ FVE on the Back of Robust Defense Spending Outlook

We increase narrow-moat Thales’ fair value estimate by 13% to EUR 130 per share from EUR 115 per share. Increased defense spending in the group’s core markets is the key driver behind the rise in our fair value estimate. The group’s defense and security business (54% of group sales) is the number-one supplier in Europe of sensors and mission systems for a range of aircraft, ships, and military vehicles. Thales’ products are well represented on the highly successful Dassault Rafale fighter jet, which is successful in domestic French and export markets. We believe the heightened security risk in Europe, in conjunction with several announcements of increased defense budgets over the medium term, will benefit Thales. We increase our forecast growth rate for the segment over the five-year explicit period to 6% per year, from 4% previously. The share price has increased by 60% year to date and currently only offers moderate upside to our updated fair value estimate.