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Leonardo SpA LDO

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Morningstar’s Analysis

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Leonardo Continues to Lag Defense Peers; Fair Value Estimate Unchanged

Joachim Kotze Equity Analyst

Analyst Note

| Joachim Kotze |

Things remain challenging at narrow-moat Leonardo as they continue to underperform defense peers. Productivity and delivery delays continue to affect the group, which reported a 28% drop in EBITA for the first nine months of 2020, a slight improvement from the 40% decline in the first half. Sales and orders remain flat, with the helicopter division posting solid 41% growth in orders, offset by a decline in the defense and aeronautics order intake. Free cash outflow of EUR 2.6 billion is EUR 1.4 billion lower than the comparative period, driven by delivery delays and a buildup of working capital. Management maintains guidance for full-year EBITA of EUR 925 million and a cash flow-neutral position. Over the medium term group sales will be driven by the delivery of Typhoon fighter jets to Kuwait and a recovery in civil helicopter markets where the group enjoys a leading global position. Our fair value estimate of EUR 11.80 reflects huge upside from the current price, but we highlight that our forecasts come with a high degree of uncertainty due to the lumpy nature of revenue and high operational gearing.

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Company Profile

Business Description

Leonardo is one of the largest European defense firms, with 30% of its shares owned by the Italian government. The group’s divisions include helicopters; defense, electronics, and security systems; and aeronautics. The helicopter division serves both military and civil markets through AgustaWestland. DES has access to the U.S. defense market through the DRS subsidiary. The aeronautics division cooperates in international programs such as Eurofighter Typhoon, F-35, and the new Tempest and supplies aerostructures to large commercial aircraft programs.

Piazza Monte Grappa 4
Rome, 00195, Italy
T +39 6324731
Sector Industrials
Industry Aerospace & Defense
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2019
Stock Type
Employees 49,733