Thales down as defense spending bonanza falls short of expectations

By Geoffrey Smith

Investing.com -- Thales (EPA:TCFP) stock fell in Paris on Tuesday after the bonanza in European defense spending since the start of Russia's war in Ukraine turned out to be less impressive than hoped.

The French defense and aerospace group said earnings before interest and taxes rose 17% last year to €1.94 billion (€1 = $1.0543). While that was in line with estimates, the result was delivered largely by its digital identity and security unit, whose earnings came in €50 million ahead of expectations at €494M. The aerospace and defense units both reported earnings slightly below consensus forecasts.

Thales stock, which was one of the best performers in European stock markets last year, fell 3.3% in response, even though the group raised its dividend by more than expected to €2.94 from €2.56.

Thales, which makes a wide range of products for the defense and aerospace industry, said its order book rose by 18% to €40.96B last year as western governments scrambled to make up for years of historically low defense spending, in response to Russia's launching of the biggest interstate war in Europe since World War 2.

That raised the book-to-bill ratio, a key metric of the company's near-term outlook, to 1.34. The company said it aims to keep that ratio above 1 this year.

A higher book-to-bill ratio reflects greater certainty of capacity utilization and consequently supports a company's pricing power. That was reflected in Thales raising its cash flow generation target to around €6.5B for the three-year period through 2023.

For 2023, the group sees sales of between €18B and €18.5B, a rise of 4%-7% from 2023 levels.

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