We arrive at a target price of EUR348 using a DCF model based on 17% EBIT CAGR 2025-30E, 3% long-term growth, 9% WACC, and 80% long-term cash conversion, which implies a 2025 EV/EBIT of 22.9x. In deriving an equity value from our EV, we adjust for net debt and for the company’s stake in Thales (which we conservatively value at a 15% discount to market price). Previously, we artificially reduced our mid-term forecast to what we see as mid-cycle Rafale deliveries, in order that we do not apply a terminal value to peak fighter jet deliveries. However, recent orders mean that we believe the current rate of 4 per month is likely to be sustainable for the foreseeable future (Dassault is considering increasing to rate 5 post 2030, which would provide further upside).

The key negative risks to our thesis and the achievement of our target price are:

Global Aerospace supply chains are currently stretched. We flag that supply chain difficulties could impact the company’s ability to deliver aircraft. While we believe some risk is already priced in, if supply chains should worsen, this could negatively impact the share price.

We flag the possibility of government-imposed carbon taxes as a source of potential risk to the business jet market. While we believe this this risk has diminished in the US under a Trump administration, it could nevertheless be a challenge for the bizjet industry in the coming years.

On 21 November 2024, the UK SFO and France’s PNF announced an investigation into Thales. Thales has denied any wrongdoing. There is little detail about the investigation, and we are not in a position to comment on the likely outcome of the probe; nevertheless, we flag it as a potential source of volatility given Dassault’s large stake in the company.

Positive risks include:
Large, unexpected Rafale orders
Aerospace supply chains easing more quickly than anticipated. We believe the market is expecting aerospace supply chain to remain strained for at least 18 months, but potentially 2-3 years. If supply chain issues ease significantly over the next 12-18 months, then there could be upside risk to consensus delivery expectations.