Our target price of €64 is based on European defense spending driving double-digit growth out for 5 years using discounted cash flow valuation, driven by a 17% 5-year profit CAGR, followed by 8.4% growth out to 2034, 91% cash conversion, a 28% tax rate, and a 9% WACC. Our target price is equivalent to 2025E EV/EBIT of ~27x. This assumes that European defense spending rises from the current ~2% of GDP to ~3.5% in 2034.

We see some main risks to the achievement of our target price as: 1) Cash conversion - the company does not have a long history, and its ability to convert cash into profit is relatively unproven. 2) German defense spending - although increasing the defense budget appears to have cross-party support and spending priorities may have changed post COVID. 3) Resolution of the Ukraine conflict could cause a negative sentiment across the defense sector, driving a derating, although we do not believe this would materially change the spending outlook. 4) While we have some doubts about the ability of most European countries to raise defense spending to 3.5%, rearming could accelerate this.


If any of these risk factors has a greater downside impact than we anticipate, the share price will likely be lower than our target price. Conversely, if the impact of any of these upside risks is greater than we anticipate, the stock could exceed our target price (and the current share price).