Analyst Note| Joachim Kotze |
Narrow-moat Leonardo continues its recovery from the low base in 2020. Order intake of EUR 8.5 billion for the first nine months increased 8.9% year on year, with order growth in the electronics and aircraft divisions offset by declines in the helicopter and aerostructure businesses. All segments, except aerostructure, contributed to group revenue and EBITA growth of 6% and 22%, respectively. The group EBITA margin of 6.3% for the first half remains below the 7.5% precoronavirus level as the aerostructure business remains loss-making due to low commercial aircraft deliveries. Guidance for EBITA growth of approximately 17% and positive free cash flow generation of EUR 100 million in 2021 is maintained. In the short term, military and government business is expected to remain robust, while the civil aeronautics business will continue to be a drag on results. Over the medium term, group sales will be driven by the delivery of Typhoon fighter jets to Kuwait and a recovery in civil helicopter and aeronautics markets. Shares continue to trade at a deep discount to our EUR 12.75 fair value estimate.