Company Reports

Wide-moat SAAB reported strong results for first-quarter 2024, driven by order momentum and SAAB's capacity expansion as the company increased its 2024 sales outlook 15%-20% from 12%-16%. We increase our valuation from SEK 860 to SEK 1,050 to incorporate management's guidance and account for increased long-term growth. We're increasing our long-term growth rate from 3% to 5% to account for an acceleration of European members' commitment to increasing their defense spending. Overall, the latest industry estimates show a cumulative increase of over $500 billion for the next decade compared with last year's predictions.

With approximately 95% of its revenue from the defense sector, Saab is well positioned to capitalize on the expected increase in European defense budgets to at least 2% of GDP due to the Russia-Ukraine conflict. This increase, coupled with EU initiatives to enhance defense capabilities through resource pooling and procurement coordination, presents significant growth opportunities for the company. Saab should realize increased demand for its support weapons, sensor systems, airborne early warning, and surface radar systems, with expectations for further growth as European nations replenish their military inventories.

We initiate coverage of Saab with a wide moat rating and SEK 860 fair value estimate, backed by an expected rise in defense spending due to greater global threats and an increase in product mix toward the high-margin and cash-generative dynamics and surveillance segments.

With approximately 95% of its revenue from the defense sector, Saab is well positioned to capitalize on the expected increase in European defense budgets to at least 2% of GDP due to the Russian-Ukraine conflict. This increase, coupled with EU initiatives to enhance defense capabilities through resource pooling and procurement coordination, presents significant growth opportunities for the company. Saab should realize increased demand for its support weapons, sensor systems, airborne early warning, and surface radar systems, with expectations for further growth as European nations replenish their military inventories.