(BFM Bourse) – The CAC 40 resident generated a cash flow more than 25% higher than consensus. The company will also reduce visibility in its space activities to cope with weaker demand in telecoms.
Thales is getting back on track on the stock market. After several weeks of stock market weakness, the technology and defense group takes center stage this Tuesday.
The company present in many sectors (space, civil aeronautics, identity and biometric solutions, on-board military electronics, cybersecurity, etc.) gained 8.2% around 12 p.m. after publishing its annual results.
This also brings Dassault Aviation, which takes 2.9%, the aircraft manufacturer holding 26.05% of the capital of Thales.
“It would seem that many Anglo-Saxon investors had positioned themselves downwards to anticipate a rate on the results, in an exaggerated manner. This did not happen and we are witnessing buybacks of shorts (unwinding of short positions). discovery sales, Editor’s note)”, slips a financial intermediary.
On the contrary, Thales exceeded expectations on all of its main indicators.
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Orders almost as big as in 2022
Order intake was robust, with a total amount of 23.13 billion euros gleaned over the whole of 2023 while the consensus expected 21.8 billion euros. Certainly this figure turns out to be slightly lower in absolute terms than that of 2022 (23.55 billion euros). But the 2022 financial year was marked by an exceptional contract, that is to say the signing of the order for 80 Rafale fighter planes from the United Arab Emirates. If Dassault Aviation designs the Rafale, the onboard electronics of the plane supplied for Thales represent around 25% of its value.
Thales ended the year 2023 with a bang, collecting 13 major orders including a contract worth 1.8 billion pounds (2.1 billion euros) in the United Kingdom with the Ministry of Defense to ensure maintenance in operational condition and the treatment of obsolescence of its equipment present on the British fleet.
“Visibility is particularly good with an order book of 45.3 billion euros, which is equivalent to approximately 29.5 months of sales,” underlines Oddo BHF.
Thales’ revenues increased by 4.9% on a reported basis and by 7.9% on a comparable basis to reach 18.43 billion euros. The “defense and security” segment, which concentrates defense activities, performed well (+7.5%) while aerospace (aeronautics and space activities) grew by 11.7%, benefiting notably the increase in orders from aircraft manufacturers in civil aeronautics. On the other hand, space was stable over the whole year due to the response of demand in telecoms for satellite activities.
The digital identity and segment (DIS) suffered in the fourth quarter, with a revenue response of 2.7% on a like-for-like basis. This is due to the decline in sales of SIM cards and “EMV”, a global security standard for bank cards.
However, in this DIS segment, Thales was able to preserve its profitability. The operating margin reaches 15.2% in 2023, with a rate of 14.6% in the second half alone which exceeded expectations by 1 percentage point, notes Jefferies.
This better profitability in this division compensates for the slightly lower than expected profitability in defense (13.2% in the second half against 13.7% expected, according to Jefferies). Ultimately, Thales’ operating margin reached 11.6% in 2023 compared to 11% in 2022. Operating profit, of 2.13 billion euros, exceeded the consensus by 1.3%.
Restructuring of the space division
But “the salient point” of the publication remains the cash generation, emphasizes Jefferies. Over the whole of 2023, Thales generated operating cash flow of 2.03 billion euros, exceeding expectations by 25%. Oddo BHF notes that this cash generation was driven by down payments linked to export contracts, a positive phasing effect on collections as well as by its initiative to optimize cash management called “ca$h” and launched in 2019.
Following these good results, Thales delivered its outlook for 2024, counting on order intake higher than its turnover, revenues of 19.7 billion euros to 20.1 billion, which reflect a organic growth of 4% to 6% and an operating margin of between 11.7% and 12%.
As is often the case with the group at the start of the year, these objectives seem a bit cautious and are slightly below expectations, since the consensus is at 19.96 billion euros for revenues and an operating margin of 12%.
It should be noted, however, that the operating margin target includes restructuring costs (approximately 50 million euros) linked to the organization of its space division, as financial director Pascal Bouchiat explained to analysts.
Thales, in fact, announced Thursday that it would eliminate 1,300 positions in its space subsidiary Thales Alenia Space to redeploy them this year and in 2025 in other activities. This adaptation plan acts on the weakness of the telecoms market (around a third of Thales Alenia Space’s activity) and aims to restore an operating margin close to 7% in the medium term in space.
“We can appreciate the fact that they include restructuring costs in the margin objective, unlike many. Furthermore, space employees have strong skills. Once trained, they will certainly increase productivity in the other divisions”, appreciates the financial intermediary, previously cited.
Julien Marion – ©2024 BFM Bourse
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