Company Reports

Dassault Aviation maintains a healthy balance between its civil (30% of revenue) and defense sector (70% of the revenue). We believe the firm has a positive outlook, supported by a strong defense order backlog, potential for a recovery in business jet market share, and steady aftermarket business.

Wide-moat Dassault reported a mixed set of results. While defense orders remain strong, Falcon orders saw a slight decrease, and supply chain issues continue to impact deliveries. However, Dassault reported an increase of 21% in available cash from EUR 7.3 billion at the end of 2023 to EUR 8.8 billion by the first half of 2024, mainly the result of advance payments received under Rafale Export contracts.

Wide-moat Dassault Aviation posted full-year revenue of EUR 4.8 billion with 13 deliveries for Rafale and 26 for Falcons, both below respective guidance of 15 and 35. Results were in line with our expectations, and we maintain our fair value estimate.

We are initiating coverage of Dassault Aviation with a wide moat and fair value estimate of EUR 204 per share, backed by expected rises in defense spending due to global threats, a recovery in the business jet market, and a higher share of aftermarket revenue.

Dassault Aviation maintains a healthy balance between its civil (30% of revenue) and defense sector (70% of the revenue). We believe the firm has a positive outlook, supported by a strong defense order backlog, potential for a recovery in business jet market share, and steady aftermarket business.

We are dropping coverage of Dassault Aviation. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Dassault Aviation has an entrenched relationship with the French department of defense and is one of three global suppliers of large, long-range business jets. We are positive on the medium-term prospects for Dassault underpinned by a solid defense order backlog, the potential to regain share in the business jet market, and the opportunity to grow support and service revenue.

Narrow-moat Dassault Aviation reported a bumper set of 2021 full-year results. Order intake took to the skies--the group booked orders for 100 jets (51 Falcon and 49 Rafale) to the value of EUR 12.5 billion, which compares with EUR 3.5 billion in 2020. Sales grew by 31% on the back of higher-than-expected deliveries, while EBIT more than doubled to EUR 527 million as a result of operating leverage. The backlog now stands at EUR 20.8 billion (EUR 15.9 billion in 2020) and consists of 86 orders for Rafale fighter jets and 55 Falcon business jets. The backlog doesn't include the United Arab Emirates (UAE) and Indonesian orders for 80 and 42 Rafale fighter jets signed after year-end, respectively. Sales in 2022 are guided to be lower on the back of delivery guidance for 13 Rafale jets and 35 Falcon jets.

Germany’s boost in defense spending, announced Feb. 27, will benefit most European defense contractors and could lead to multiyear increases in the growth outlook for these companies. While it is early days and very difficult to quantify the exact impact, we expect to make positive adjustments to our defense coverage. Of the pure-play defense names, narrow-moat Thales, Dassault, and Leonardo trade at discounts to our fair value estimates while wide-moat BAE Systems trades at a premium. We don’t believe our revisions will change this ranking by much, and our preference is for Thales and Dassault. Despite the impact from a demand and cost perspective on the airline and commercial aerospace companies we cover, we don’t foresee any structural long-term changes to their prospects and as such don’t anticipate any major changes to our fair value estimates. We maintain our preference for wide-moat Safran and no-moat Wizz Air under our aerospace and airline coverage, respectively.

Dassault Aviation has an entrenched relationship with the French department of defense and is one of three global suppliers of large, long-range business jets. We are positive on the medium-term prospects for Dassault underpinned by a solid defense order backlog, the potential to regain share in the business jet market, and the opportunity to grow support and service revenue.

Dassault Aviation has an entrenched relationship with the French department of defense and is one of three global suppliers of large, long-range business jets. We are positive on the medium-term prospects for Dassault underpinned by a solid defense order backlog, the potential to regain share in the business jet market, and the opportunity to grow support and service revenue.

Narrow-moat Dassault Aviation’s first-half revenue of EUR 3.1 billion increased 18% year over year, resulting in EBIT more than tripling to EUR 175 million due to operating leverage. Total deliveries of Rafale and Falcon jets declined to 19, compared with 23 in 2020. New order intake to the value of EUR 3.9 billion compares with EUR 1 billion in the first half of 2020 due to the lack of large orders in the comparable period. The order backlog of EUR 16.7 billion equates to two and a half years of sales. The group maintains its delivery guidance of 25 Rafale jets and 25 Falcon business jets in 2021. Profitability should continue to benefit from a lower cost base and higher fixed-cost recovery. We maintain our EUR 1,600 fair value estimate and believe the shares are undervalued, but note the high uncertainty rating stemming from the low-volume, high-value nature of the group’s products. The company will do a 10:1 stock split in October in an effort to increase liquidity.

Dassault Aviation has an entrenched relationship with the French department of defense and is one of three global suppliers of large, long-range business jets. We are positive on the medium-term prospects for Dassault underpinned by a solid defense order backlog, the potential to regain share in the business jet market, and the opportunity to grow support and service revenue.

Narrow-moat Dassault Aviation’s full-year 2020 revenue of EUR 5.5 billion declined by 25% from 2019, resulting in a 66% drop in EBIT to EUR 261 million due to an under-recovery of fixed costs. Total deliveries of Rafale and Falcon jets declined to 47 compared with 66 in 2019. The new order intake to the value of EUR 3.5 billion is about 40% lower compared with 2019, mainly due to the nonrecurrence of a large Rafale long-term service contract signed in the prior period. The current group order backlog is EUR 15.9 billion, equating to slightly over two years of sales. The group is guiding for deliveries of 25 Rafale jets and 25 Falcon business jets in 2021, and for sales to increase. Profitability should benefit from a lower cost base and higher fixed-cost recovery. We maintain our fair value estimate of EUR 1,400 per share and believe shares are undervalued, but note the high uncertainty rating stemming from the low-volume, high-value nature of the group’s products.

First-half 2020 EBIT of EUR 55 million declined nearly 80% from first-half 2019 as narrow-moat Dassault Aviation’s high fixed cost base could not contend with a 14% drop in sales. Total deliveries of Rafale and Falcon jets declined to 23 compared with 27 in first-half 2019. The new order intake to the value of EUR 1 billion is 65% lower compared with 2019, mainly due to the nonrecurrence of a large Rafale long-term service contract signed in the prior period. The current group order backlog is EUR 16.2 billion, equating to slightly over two years of sales. The group maintains its guidance for full-year deliveries of 13 Rafale jets and lowers the guidance for business jet deliveries to 30 units, from 40 previously. Sales and profits should recover in the second half as the group resumes normal production activity. We maintain our fair value estimate of EUR 1,400 per share and believe shares are undervalued but note the high uncertainty rating stemming from the low-volume, high-value nature of the group’s products.

We increase our fair value estimate for narrow-moat Dassault Aviation to EUR 1,400 and upgrade our moat trend outlook to positive. Defense export order wins and growth in the group’s aftermarket revenue drive our higher fair value estimate. Additional long-term military support contracts, contractually securing aftermarket revenue, underpins the positive moat trend related to switching costs. A significant share of the group’s net profit stems from its 25% share in narrow-moat Thales. The group operates a conservative balance sheet and has adequate liquidity to weather the current environment. The share is undervalued and a good entry point for patient investors, but comes with a high degree of uncertainty pertaining to the low-volume/high-price nature of its business model. The Dassault Group holds a 62% share in Dassault Aviation and the company trades with a relatively small free float.

Dassault Aviation has an entrenched relationship with the French department of defense and is one of three global suppliers of large, long-range business jets. We are positive on the medium-term prospects for Dassault underpinned by a solid defense order backlog, the potential to regain share in the business jet market, and the opportunity to grow support and service revenue.

Due to leading positions in military jets, Dassault Aviation will benefit from both an improved outlook in mature defence markets and sales opportunities in emerging markets. Dassault, controlled by the Dassault Family with 77% of voting rights, is the leading manufacturer of the Rafale fighter jet with 60% of the equipment value on the aircraft. Other Rafale industrial participants are Thales, with 25% of the aircraft’s value, and Safran.

Narrow-moat Dassault Aviation reported a good performance for 2019. Revenue increased 43% year over year to EUR 7.3 billion, boosted by deliveries of Rafale aircraft to Qatar. EBIT (excluding the 2018 Safran compensation) rose 64% to EUR 765 million mainly because of the increase in revenue, which resulted in a better absorption of fixed costs and an EBIT margin of 10.4%, up 120 basis points year over year. New orders increased 13.3% with the order intake for France growing significantly because of the award of a 10-year contract for the maintenance of Rafale France. We maintain our fair value estimate of EUR 1,595 per share.

Due to leading positions in military jets, Dassault Aviation will benefit from both an improved outlook in mature defence markets and sales opportunities in emerging markets. Dassault, controlled by the Dassault Family with 77% of voting rights, is the leading manufacturer of the Rafale fighter jet with 60% of the equipment value on the aircraft. Other Rafale industrial participants are Thales, with 25% of the aircraft’s value, and Safran.