Thales Reports 2022 Results in Line With Consensus and Raises Cash Flow Guidance

Narrow-moat Thales HO reported a solid set of results for financial 2022, broadly in line with company-compiled consensus. EBIT at EUR 1.9 billion, increased by 17% with margins expanding 80 basis points to 11%. The results were driven by the continued recovery of aerospace, resilient margins in defense and security, and above-target margins in the digital identity and security segment. The group upgraded its free cash flow conversion target for 2023 to 130%, from 115% previously, as it anticipates early payments from customers and a strong order flow especially in emerging markets. Guidance for 2023 is in line with company-compiled consensus with midpoint sales at EUR 18.3 billion and a margin of 11.7%, implying mid-single-digit growth in EBIT. Growth over the medium term is expected to be supported by maintained growth of defense budgets and further recovery of air traffic. This remains broadly in line with our forecast, so we don’t expect to make any material changes to our EUR 135 fair value estimate.

Order intake for the year excluding the transport business, which is up for sale, grew organically by 16% to EUR 23.6 billion driven by significant growth in emerging markets and a strong fourth quarter, which included 13 large orders. The aerospace segment saw 3% organic growth in order intake, driven by increased demand for aeronautics order intake, particularly in avionics and in-flight entertainment. After-sales activities in civil aviation also grew by 32%. The defense segment achieved a new record order intake, up 23% at constant scope, including the very large contract for the supply of 80 Rafale aircraft to United Arab Emirates and 15 contracts over EUR 100 million. The continued recovery in biometrics and strong demand for cybersecurity as well as price effect, drove the 15% increase in digital identity and security sales.