The ugly duckling has become a swan

Thales was the ugly duckling of the aerospace & defence sector for many years. However, it delivered organic growth in 2015 for the first time in six years, is closing in on its 9.5-10% EBIT margin target and has won a number of high-value contracts. Its transformation into a swan has seen the stock trading up 32% ytd (vs the SXP -4.5%), on a premium rating of 19.1x FY17e compared to the sector average of 16.5x. Thales’s adaptation into a streamlined, competitive technology company with growing emerging market exposure is well rated, but further catalysts are required.