(BFM Bourse) – The Swiss bank downgraded its opinion on the value this Monday, weighing down the Thales share which shows the biggest decline in the CAC 40.
Thales is one of the rare CAC 40 stocks that will publish its results in March. The group’s annual accounts as well as its outlook for the current year will be communicated on March 5, more precisely.
However, UBS bank did not wait for this important deadline to revise its opinion on the matter. The Swiss establishment thus went from “neutral” on the technology and defense group to “sell” this Monday, while slashing its price target on the share to 115 euros against 140 euros previously.
Which weighs on the title of the company led by Patrice Caine. At the start of the afternoon, Thales lost 4.2%, showing the biggest decline in the CAC 40.
UBS cites two reasons to justify its deterioration in value: short-term risks in the “digital identity and security” (DIS) division, which includes, for example, data protection for banks, protection of access to critical information and biometric identification solutions, as well as medium-term threats to space activity.
>> Access our exclusive graphic analyses, and gain insight into the Trading Portfolio
Less winning smart cards
For DIS, UBS is concerned about the evolution of activity in SIM cards and so-called “EMV” cards (Europay Mastercard Visa), a global security standard for global bank cards. Growth in these two products has, according to the establishment, mainly been due in recent years to price increases which reflected supply shortages in semiconductors due to the health crisis.
“Given Thales’ dominant position in the manufacturing of SIM and EMV bank cards, we believe the company was able to secure access to a more reliable supply, unlike its smaller competitors, and charge a premium appropriate in exchange for the regularity of deliveries to its customers”, judges the bank.
UBS estimates that 40% of the DIS division’s revenues are derived from these two products. However, the bank expects the prices of these SIM and EMV cards to start falling again in 2024 and 2025, to the extent that the shortage of semiconductors has now passed. It therefore expects a drop in revenues in these two products of 17% in 2024 and 7.5% in 2025. Consequently, UBS anticipates a decline of 3% in revenues from the DIS division on a comparable basis in 2024, backwards. of the consensus which expects growth of 5.3% this year.
SpaceX, the C factor of space
In space, UBS points to the competitiveness of SpaceX which has reduced the cost of launching a satellite into orbit by 70% to 80%, which “disrupts” the entire sector. Remember that Thales Alenia Space (TAS), a subsidiary of Thales co-owned with the Italian Leonardo, manufactures satellites and supplies components and electronics for launchers from Arianespace and the Italian Avio.
As a result, SpaceX, which is vertically integrated, represented 75% of launches in 2023. Thales’ European customers have withdrawn their launchers, considering them obsolete, and are working on new, more cost-effective products, explains UBS. The Swiss bank nevertheless judges that these future launchers on which these European groups are working risk not being competitive…
Furthermore, lower launch costs have made deployments of low Earth orbit (LEO) satellite constellations more viable as opposed to geostationary satellites (GEO), particularly in telecommunications.
LEO satellites cover a smaller area of the earth than GEO satellites but are faster in terms of terrestrial transmission. They also require more units than GEOs to provide a given coverage and therefore require more launches.
The critical point is that traditional satellite producers like TAS or Airbus have been major suppliers of GEO satellites. However, the market is “changing orbit” towards LEO satellites with the drop in launcher costs, notes UBS. These LEO satellites are smaller, easier to produce than GEOs, which lowers the barriers to entry into the market. And allows constellation operators like Starlink (SpaceX) and Kuiper (Amazon) to produce their own satellites and therefore to be vertically integrated.
As a result, UBS sees TAS’s satellite market share eroding in several segments. “We believe that incumbent space operators, and in particular TAS, are likely to structurally lose the majority of their telecommunications sales to vertically integrated satellite owners such as Starlink,” the bank explains. . “We also see downside risk in most segments with sales to military customers, who will likely continue to contract with traditional OEMs for security and non-commercial reasons, only partially protected,” adds -she.
In view of these risks UBS is very cautious about the financial prospects of TAS. The Swiss bank anticipates an operating profit in balance (therefore close to 0) in 2023, 2024, 2025, 2026 and 2027. In comparison, the consensus is much more optimistic, counting on a modest operating profit in 2023 and 2024 before an acceleration to 81 million euros in 2025, 115 million in 2026 and 137 million in 2027.
Julien Marion – ©2024 BFM Bourse
Are you following this action?
Receive all the information on THALES in real time: