The management team at Thales (PA:TCFP) is doing a good job of restoring credibility with investors, as evidenced by the more than doubling of the share price since October 2014. Organic growth has been stimulated and the problem areas have progressively been addressed. Portfolio optimisation continues, with strategic acquisitions furthering the group’s capabilities, notably in cyber through the Vormetric purchase and the new Cisco partnership for critical national infrastructure cyber protection. In a relatively short time, Thales has progressed from underdog status in the defence sector to a globally competitive critical solutions provider.
Strong H1 with improvement across the board
H116 sales of €6.85bn were 3.0% better than market expectations and 7.9% higher than H115 (8.9% organic). Adjusted EBIT rose 16.5% to €551m, a 2.0% beat of market consensus, with margins expanding 60bp to 8.1%. Transport grabbed the headlines with a 29% organic sales improvement, although in absolute terms all three divisions contributed to both the sales and earnings growth. A free operating cash inflow of €45m was a first for Thales in a first half, although the unwinding of contract advances in H2 leaves full year FOCF guidance unchanged. Despite the stronger than expected performance, FY16 guidance was maintained at mid-single digit organic growth with adjusted EBIT of €1.30-1.33bn.
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