Analyst Note| Joachim Kotze, CFA |
Narrow-moat Thales booked a record first-half order intake of EUR 11.2 billion, up 43% year on year, driven by the finalization of the order for 80 Dassault Rafale jets by the United Arab Emirates in the second quarter. Group EBIT increased by 23% year on year to EUR 891 million as all segments increased margins. Free cash flow more than doubled, aided by the down payment for the UAE order, driving net debt down further to EUR 894 million, from EUR 2.5 billion a year ago. Despite looming supply chain challenges, management slightly upgraded full-year sales growth guidance to a midpoint of 4.5%, from 4% previously, and maintained margin guidance at a range of 10.8% to 11.1%. The group is well positioned over the medium term—the defense business will benefit from multiyear increases in defense budgets while the civil aerospace and digital identity and security segments will see a cyclical upswing after two years of depressed demand. The sale of the transport business will result in a more focused portfolio.