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We have adjusted our estimates ahead of H1 2025 results on 25th July. We continue to expect -2.4% LFL decrease YOY in Q2, but have slightly revised down Q3 and Q4 to respectively +0.5% and +2.5% (from respectively +0.8%, +2.9%). Our LFL growth for FY 25 goes down by 20bps to -1.5% YOY. That said, we continue to see company-compiled consensus as conservative for H2, especially on the growth delta expected in Q4 vs. Q3 (cons has -0.1% LFL in Q3 and +1.3% in Q4) considering 1/ working days turning into a tailwind in Q4, 2/ lower comps in France and the UK, and 3/ potential ramp-ups of contracts in financial services and the UK. We do not consider the changes to be material; our rating is unchanged.
Sopra Steria Group Sopra Steria Group SA
What happened? We have spoken with Sopra Steria and highlight there is no change to the FY 2025 guidance. The company highlights the business environment remains stable, though not very dynamic. The stabilisation of Airbus, and the improvement in France in the public sector is confirmed (albeit from a low starting point due to lack of public budget at the beginning of the year in the country), which supports the group''s expectation for a return to flattish + organic growth in H2. The company also reiterates that the pipeline is huge in the defence vertical, which also supports an acceleration in revenue growth in the vertical in H2, although budget constraints remain high in France in particular. The company continues to expect a gradual improvement in organic growth trends in the coming quarters from the c. -5% LFL reported in Q1. BNPP Exane View: We find it encouraging that Sopra Steria continues to expect a gradual improvement in YOY organic growth in the coming quarters, although the exact timing of a return to positive organic growth remains, in our view, a question mark (Q3 or Q4 2025?). We expect consensus expectations to remain broadly unchanged as we move closer to Sopra Steria''s H1 results publication date on 25th July.
Q1 sales declined less than feared Sopra Steria reported total sales reaching EUR1,415m in Q1 2025, down -4.9% organically at cc, at the high end of the -5% to -6% guidance and 60bps ahead of consensus. The CEO attributed the slightly better performance to 1) Airbus in France and 2) financial services in the UK. A return to positive organic growth as of Q3? Mgt confirmed they have visibility on an easing of the group LFL growth decline in Q2 (BNPPE: -2.5%), driven by deals expected to ramp up in the public sector and financial services, while working days should become less of a drag as the year progresses, and turn into a tailwind in Q4. If macro holds (arguably a big ''if''), with better comps in Aero and NSandI ramping up, we believe Sopra Steria could return to slightly positive organic growth as of Q3: we currently model +0.8% LFL. Change to our forecasts Our estimates for the year are broadly unchanged: we expect -1.3% LFL growth for the year (-1.4% pre-Q1) and 9.4% adjusted EBIT margin, in line with our previous estimate. Maintain Outperform, TP up to EUR220 SOPR started the year slightly better than expected, and the confirmation of an easing in sales decline in Q2 was positive and could pave the way for a return to positive LFL growth as of Q3 unless macro further deteriorates. With the ramp-up of the NSandI contract, Defence re-accelerating in H2, a good pipeline in financial services in France potentially converting into revenue as of Q3, and easing comps due to Airbus, SSCL and the loss of the UKVI contract in Q4 2024, we like that Sopra Steria offers some idiosyncratic characteristics outside of macro that can help investors gain confidence in a return to positive organic growth. As that happens, we see potential for the shares to re-rate: at 7.7x NTM EV/EBIT, the shares trade in the lower half of their 6-11x 10-year range despite an appealing Defence exposure. O/P, TP up to EUR220 (from EUR210 on DCF-roll-forward).
What happened? Sopra Steria call just ended. Main highlights include: . Business environment: Sopra Steria has some visibility on Q2 giving confidence sales decline LFL can ease next quarter, but visibility on H2 remains low despite pipeline remaining strong, in line with comments made two months ago as the company reported FY 24 results. . Q2 is expected to be helped by better trends in the public sector and Financial Services in France, and the UK accelerating thanks to NSandI contract ramping. CEO confirms NSandI should eventually contribute EUR20m per quarter to the UK''s revenue. However, CEO also mentioned the UK should return to positive organic growth in H2, but most probably in Q4, which we see as slightly disappointing: we currently have the UK returning to positive LFL growth (+1% LFL) as of Q3. . Consulting was down -4% LFL in Q1 25 with a technical improvement in growth rates through the quarter, although CEO said the consulting market remains stable . Aero: CEO confirmed the stabilisation slightly above EUR100m with Airbus in Q1 and similar level for the coming quarters. This should help France potentially returning to positive organic growth in the course of H2, in our view. . Scandinavia started the year slowly i.e. flattish + in Q1 and management does not expect an acceleration in H2, which we find a bit underwhelming. . Spain and Italy showed +5-8% growth in Q1, and management encouragingly expect this growth rate to persist through the year. BNPP Exane View: Solid call from management in our view, although it is clear visibility is low for H2. The confirmation of revenue stabilisation in aero is good news as we think it could pave the way for a return to organic growth at the group level as of Q3 if macro remains stable. That said, CEO comment that the UK will most probably return to positive organic growth in Q4 is a bit underwhelming, in our view.
What happened? Q1 sales came in at EUR1,415m in the quarter, declining -4.9% organically at cc, better than the -5% to -6% guidance . France was down -4.9% LFL with most verticals experiencing a contraction; PR confirmed the through is now behind in the country as ''negative growth trend expected to ease in Q2 25'' . The UK was down -10.8%, a touch better than the -12% we had in our model, hit by negative LFL growth in the public sector as expected. The start of NSandI in April is confirmed . Europe was down-3.3% LFL, as Germany and Benelux were in negative territory . Solutions were just up +2.5% LFL, ahead of our +1% LFL Guidance on revenue, FCF adjusted EBIT are unchanged, with revenue -2.5% to +0.5% LFL, adjusted EBIT margin of 9.3%-9.8% and FCF margin of 5-7% Staff attrition reached 16.4%, roughly in line with Q4 2024 (14.1%). Headcount reached 50,106, down -1.7% from Q4 24 Sopra Steria''s Q1 25 sales vs. expectations / Source: Company-compiled consensus, BNPPE estimates BNPP Exane View: A solid start to the year for Sopra Steria, driven the UK dropping less than expected, which could confirm better trends in financial services in the country as mentioned by Capgemini yesterday, and Solutions. The confirmation of an improvement expected in Q2 at the group level, and an easing in the LFL decline in France in particular is important in our view, as it should give investors more confidence in a potential return to positive organic growth in H2.
What happened? Sopra Steria announced this morning that it has secured a GBP300m contract extension to deliver critical business services to 6 UK government clients for the next three years, until at least 2028. We understand from our follow-up conversation with the company that this extension, along with those already announced in Q4, should enable the SSCL JV to keep generating a similar level of annual revenue run-rate to what it is currently generating. BNPP Exane View: The SSCL contracts renewal was a risk Sopra Steria was facing this year. The extension announced today removes this risk, which we see as positive for the stock.
We have adjusted our estimates and are now expecting -1.4% LFL growth for FY 25, slightly better than previously (-1.8% LFL) as we feel a bit more confident on a return to positive organic growth as of Q3 this year. We expect -5.1% LFL growth in Q1, and 8.9% EBITA margin in H1 25 (H1 24: 9.7%). We do not consider the changes to be material; our rating is unchanged.
What happened? We spent the day in group meetings with Sopra Steria at our TMT Conference. Investors have focused on short-term demand environment for IT services in general, Sopra Steria''s exposure to Defence in particular, and the drivers to a potential growth acceleration in H2. In more details: . Defence currently represents c. 13% of the group''s total revenue, with offerings including identification management, domestic security, control and command, administration, and logistics and maintenance, mainly in France and the UK. Although the vertical suffered from delays at the start of the year, pipeline is huge and growth is expected to accelerate in H2. SOP is well-positioned to benefit from increased spending in Defence in Europe, but the transformation of latest announcements in Germany for instance into accelerating revenue growth is likely to take time. . Public sector deteriorated at the end of last year and fell below the company''s expectations due to France, Germany, and the UK to a lesser extent. However, February has seen an improvement already with the start of new contracts, and March should further improve. . The UK will continue to suffer from the VI contract loss in the coming quarters, but the NSandI ramp-up starting in April, and other ''big opportunities'' the company is working on, should enable the business unit to return to growth in Q3. SSCL contracts that are up for renewal at the end of the year are expected to be extended by a couple of years. . Financial Services'' pipeline is strong thanks to very large programs at French banks (BPCE, BNPP, Societe Generale) making Sopra Steria more optimistic for H2, although it remains to be seen whether these programs convert into actual new orders for the group . Capital allocation: share buyback should be an area of debate for the board of directors, though it will have to be balanced with the midterm MandA strategy of the group BNPP Exane View: There are a few idiosyncratic...
Weaker Q4 and FY 2025 guidance Sopra Steria reported disappointing Q4 results and FY 2025 guidance. LFL growth reached -2.7% in the quarter (Q3: 0%), below cons. at -1.2%. FY 24 adjusted EBIT margin was 9.7% vs. guidance of 9.7%, while FCF was strong at EUR432m (guidance: c. EUR350m), helped by a EUR45m one-off related to SFT in Germany. For FY 2025, the company expects -2.5% to +0.5% LFL growth, with Q1 starting down -5%/-6%, and adjusted EBIT margin of 9.3-9.8% including 30bps of headwind from hikes in employer charges in the UK and France, below pre-release expectations of 10.0%. Visibility remains low on H2 re-acceleration; UK VI contract loss is disappointing Management announced the loss of the visa contract in the UK to a competitor, which comes ahead of major expected renewals with the SSCL JV later this year, reversing a few years of stronger commercial momentum in the country. Pipeline for H2 is strong, but visibility on conversion remains low, making the prospect of an underlying re-acceleration (beyond low comps) still uncertain. Changes to our estimates, TP down to EUR210 (from EUR220) We have cut our adjusted EBIT estimates by 6-9% over FY 2025-28E (details p. 2) as we turn more cautious on topline and margin developments in the years to come. Our adjusted EPS goes down by a lesser extent as we reflect the impact of the buyback on the share count. For FY 2025 specifically, we now model -1.8% LFL growth and 9.4% adjusted EBIT margin. TP down to EUR210. Outperform maintained Sopra Steria disappointed on its midterm guidance in mid-December last year, and the soft FY 2025 guidance probably explains mgt''s reluctance to provide early indications on 2025 at this time. The good thing is that expectations might finally have been reset for good. However, timing of a potential inflection remains uncertain. We keep our Outperform rating as we find valuation attractive at 9% FCF yield 2025E with virtually no debt, vs. c. 7.5% 10-year average.
What happened? Sopra Steria''s FY 2024 results call just ended. Many questions were focused on the expected growth cadence for the year, and the UK VI contract loss, a negative surprise from the release. In more details: Growth cadence for the year: CEO expects Q1 to be the lowest point at -5%/6% due to 1/ high comps in Aero in France, 2/ UK hit by the loss of the UK VI contract, and 3/ slow start to the year in the public sector in France, Germany, Benelux. Q2 is expected to improve as 1/ the UK will become less of a drag as the NSandI contract starts ramping-up in April to partially offset the UK VI contract loss, and 2/ better trends in the public sector now that the public budget has been voted in France. Management acknowledges low visibility on H2 growth, but the pipeline is strong, and H2 growth will depend on decision making from customers on pipeline conversion at the end of H1. The low-end of the -2.5%/+0.5% LFL growth guidance for the year assumes no improvement in H2 HoH, while the high-end assumes a relatively strong rebound. UK VI contract loss: the disappointing growth in the UK in Q4 (c. -9% LFL) was explained 70%-30% by high SSCL comps, and the loss of the visa contract (UK VI); which expired and was won by a competitor at the beginning of Q4. The renewal included a different scope in terms of nature of services offered and geographies, which explains the loss for SOP. SSCL contract are up for renewal at the end of the year; management highlighted that part of the related services have already been renewed (the Metropolitan police, for instance), and mentioned expectations of ''good news'' on the topic in the weeks and months to come. Gen AI: CEO does not see a ''tidal wave in demand'' for GenAI. So far, SOP is not seeing a positive impact on pricing, The ramp-up is perceived by management as relatively slow, and CEO sees GenAI ramp-up more as a 3-5 year trend. BNPP Exane View: The confirmation of the loss of the UK VI contract is bad...
What happened? Sopra Steria delivered a soft end to the year, highlighting market conditions deterioration in Q4, and Q1 2025 early growth indication of -5%/-6% implying further deterioration, though it is expected to be lowest growth quarter of the year, with FY 2025 LFL growth seen at -2.5% to +0.5%. In more details: . Reported group revenue were down -2.7%LFL in the quarter vs. cons. at -1.2% (see details on p. 2), hit by the UK down -9.4% LFL on the back of high comps, and major contract expiration. France deteriorated to -2% LFL vs. c. -1% LFL in Q3, hit by aero, which we do not see as a major surprise following CAP''s release. . In H2, adjusted EBIT margin reached 9.9%, in line with consensus, but -2% below in absolute terms . FCF was very strong, reaching EUR432.1m for the year vs. guidance for c. EUR350m, helped by a EUR54.2m working capital inflow Headcount reached 50,998 at year-end 2024, down -1.5% YOY and -1.7% QoQ. Guidance for 2025 is disappointing vs. sell-side estimates: the company sees -2.5% to +0.5% LFL growth this year, with Q1 indicated at -5% to -6%, which should be the lowest point of the year, likely hit by the UK and France. Adjusted EBIT margin range is expected between 9.3% - 9.8% vs. cons. 10.0%: This includes 30bps headwind from higher employer''s payroll contribution in the UK and France, at the high-end of the 10-30bps we were expecting. Sopra Steria does not commit to a firm FCF guidance in absolute EUR terms. The company expects 5-7% FCF margin, in line with the midterm targets. In the midpoint of the revenue guidance, it implies a wide range of c. EUR290m to slightly more than EUR400m, in our estimate. This wide range probably reflects uncertainties around working capital outflows this year following an unexpectedly strong performance on that front in 2024. BNPP Exane View: We find the FY 2025 guidance on LFL revenue growth OK vs. CAP''s -3%/0% implied organic growth outlook for the year. However, the magnitude of...
Underwhelming new midterm targets SOP unveiled new midterm targets at its CMD today. The company now expects +2-5% organic growth for FY 26-28E (previous midterm target: +4-6%), 10-11% adjusted EBIT margin in 2028 vs. 9.7% in 2024, and 5-7% FCF margin over the period, in line with the previous target. SOP also expects c. EUR1bn of total revenue from acquisitions through to 2028. The organic revenue target implied total revenue roughly in line with consensus for 2028, but downside on adjusted EBIT margin (cons had 10.9% based on Visible Alpha) and FCF margin (cons: 7.4%) at the midpoint. Transformation underway to improve the group''s performance Management highlighted several levers that should help the group''s performance, both on topline and profitability. These include consulting going from 9% to 12% of sales by 2028, new technology to represent c. 60% of revenue from 50% currently, operating model transformation to improve MandA integration and talent management, and increased usage of GenAI. Changes to our estimates We cut both our organic growth and margin expectations for 2025-28E, resulting in 1% to 8% adjusted EPS cuts over 2025-28E (details on p. 2). We have also increased our working capital requirements estimate for FY 2024 as a result of potential increased pressure from customers on payment terms, and now model EUR312m FCF this year vs. guidance of c. EUR350m. TP cut to EUR220 (from EUR240), Outperform maintained SOP''s CMD was not the positive catalyst we were hoping for. However, the stock now trades on c. 11% FCF yield 2025E and the new midterm targets are undemanding, leaving room for positive surprises, especially on margins. The next catalysts for the stock are improved political stability in Europe and Airbus re-accelerating, which are likely to be H2 25-loaded. We keep our O/P rating but cut our TP to EUR220 as we cut our estimates for midterm growth/margin in our DCF.
What happened? Sopra Steria''s CMD and subsequent lunch with management just ended. Management highlighted a few tailwinds to organic growth and/or profitability improvement in the years to come including the transformation of the operating model of the group, higher share of value-added technology offerings expected to grow from 50% to c. 60% in 2028, consulting going from 8% to 12% of sales, increased focus on four priority verticals, continued project portfolio management enhancements etc... Despite these positive evolutions, the group expects slower organic growth (+2-5%) in FY 2026-28E than in the previous midterm plan (+4-6%), limited adjusted EBIT margin upside (10-11% in 2028 from 9.7% in 2024), and 5-7% FCF margin, in line with the previous midterm plan. BNPP Exane View: From our conversations with management, we understand that the group has taken a prudent approach to the new midterm targets in view of the current uncertain business environment, with a ''volatile'' political environment both in France and in Germany, and also reinforced pressure on payment terms from the public sector, for example in France. It also accounts for the negative impact on organic growth from the gradual ramp-down of SFT (note that we for instance model just +2.2% LFL growth for the group in 2027 as a result). At the same time though, the disappointing margin target does not seem to embed a material headwind from planned MandA contrary to our initial expectation, but does include the positive impact from SFT''s ramp-down. The clarification of these two elements makes the 2028 margin ambition truly underwhelming in our view.
What happened? Sopra Steria just released a PR including its new midterm targets ahead of its CMD starting at 9am CET this morning. The new midterm goals include EUR7bn in total revenue for 2028, including 6% reported revenue per year over FY 2025-28E and +2-5% annual organic growth over FY 26-29E (FY 2025 is understandably excluded from that goal), operating margin on business activity (adjusted EBIT) of 10-11% in 2028, 5-7% FCF margin in 2028, c. 20% return on capital employed in 2028, and net debt /EBITDA not exceeding 1.5x for 2028. We note that these new targets compare to the group expecting 9.7% adjusted EBIT margin in FY 2024, and previous midterm targets including 1/ +4-6% annual organic growth, and 2/ 5-7% FCF margin. Sopra Steria''s 2028 targets vs. consensus / Source: Visible Alpha, BNPPE estimates, company; we show in yellow the organic revenue implied by the +2-5% annual organic growth target for FY 2026-28E using 2025'' cons estimate as a base; we do not show implied adjusted EBIT and FCF in absolute terms for other lines as the company''s targets include MandA, which does not make them comparable to consensus in our view BNPP Exane View: We find the new targets a bit underwhelming. Firstly, we would have thought Sopra Steria would return to its previous midterm organic growth targets post-2025 of +4-6%, which is not the case. Secondly, we thought Sopra Steria would have guided for at least 11% adjusted EBIT margin for FY 2028 while in the midpoint, the 10-11% guidance implies just 60bps of margin improvement over 2025-28E (cons. has 9.9% for FY 2024, and 10.9% for FY 2028 i.e. +100bps over the period). That said, the organic revenue guidance implies total revenue for FY 2028 roughly in line with consensus (assuming consensus is right on its FY 2025 estimate), while the adjusted EBIT and FCF margin targets include the impact of planned MandA to generate c. EUR1bn in revenue over 2025-28E. Depending on the margin profile and timing of...
What happened? We hosted Sopra Steria CFO Etienne du Vignaux at the BNPP EXANE Midcap conference yesterday. The message was very consistent with Q3 results and our Q3 roadshow with management. A few key points: Airbus: CFO shared product lifecycle management (PLM) activities represented 30% of revenue with Airbus in 2023 and suffered a lot in 2024. A rebound in PLM could drive the recovery with Airbus next year or beyond. New positions taken by Sopra Steria as part of their renewal of framework agreement with Airbus have been gained vs. both large competitors such as Capgemini, and smaller ones. Political instability in Europe: Germany is expected to decline by 4-5% this year, and with new elections expected in Feb, the group is ready to continue its efforts to shift resources to the regions vs. the federal government. In the UK, more investments in NHS could help the group as Sopra Steria earns a mark-up on some NHS hospitals'' purchases, while in France, CFO expects that in a worst-case scenario, social charges hike could have up to EUR10m negative impact on group EBIT (c. 1.6% of BNPPE''s adjusted EBIT for FY 2025). Potential margin expansion in FY 2025: Tthe group continues to see opportunities to improve margins next year through portfolio management even in an environment where revenues do not grow. BNPP Exane View: A very consistent message overall. We like that management continues to see idiosyncratic opportunities to improve underlying profitability next year even with limited to no topline growth. We wonder though if a significant rebound in PLM activities with Airbus might not depend on the launch of a new aircraft program by Airbus, which may not happen soon given the lack of pressure from Boeing. Next catalyst is the CMD on December 12.
+0.0% LFL growth in Q3 Sopra Steria reported reassuring Q3 sales this morning. Total revenue was EUR1,357m, flat organically at cc, broadly in line with cons. at +0.2%. France deteriorated QoQ with consulting still down -5% in the quarter, and Europe was hurt by Germany (-5% driven by public sector), but the UK (+2.3% LFL) and Solutions (+3.9% LFL) were solid. Strategic continuity We hosted a lunch with mgt following the Q3 sales release. Mgt highlighted 1/ strengthening of Sopra Steria''s position with Airbus following the extension of framework agreements in September, 2/ idiosyncratic levers to improve margins, which we believe imply Sopra Steria could still slightly improve margins next year even with 3% LFL growth, 3/ continuity in the strategy: the group plans to remain focused on existing geographies and verticals, with no major change in offshoring ratio or only marginally in the UK, for example, 4/ increased focus on ''shareholder-friendliness'', which could for instance result in share buybacks becoming more recurring. Change to our estimates We have revised down our organic growth estimate for FY 25 from +3.2% to +1.7% and slightly cut our margin estimates as well (details p. 2). In all, we cut our adjusted EPS by -13%/-7% over FY 25-26E including the impact of the French surtax and exceptional tax on share repurchases. Excluding these impacts, our adjusted EPS would have gone down by c. -5% over FY 25-26E. Outperform, TP down to EUR240 (from EUR245) Sopra Steria''s Q3 sales came as a relief following a series of warnings in the sector, demonstrating again the resilience of the group''s vertical exposure and the consistency of its delivery. At c. 11% FCF yield 2025E with virtually no debt, we think this is not reflected in the group''s valuation, while the December 12 CMD could showcase upside to midterm margin expectations. O/P.
What happened? Sopra Steria Q3 revenue call just ended. The main points are: Airbus: the company''s assumptions for the aero sector have been confirmed with no additional deterioration; management confirms the through of SOP''s activity with Airbus will be reached and Q4, and quarterly revenue run-rate with the aero maker should then stabilised at around EUR100m per quarter, confirming previous indications for Airbus to be down -10% YOY again in FY 25. Framework agreements have been extended or renewed at constant scope for the next 5 years but those are not linked to committed revenue. CEO has let the door open for a sequential rebound in quarterly activity with the account in H2 25, which we find encouraging. Q4 24: Management expects slight organic growth decline in Q4 24 (Q3: +0.0%), driven by high comps in the UK (SSCL was up +25% YOY in Q4 23), and Solutions. The market is expected to remain stable in Q4 with similar level of activities outside of the areas affected by high comps. FY 25: Management refrained from providing early indication for FY 25''s growth level, but CEO still expect a market in ''wait-and-see'' mode at least until H1 25. BNPP Exane View: The confirmation of no further deterioration in the aero sector, combined with contract extensions with Airbus suggesting market share gains are positive. Management''s comments for a sluggish IT market continuing until at least H1 25 suggests in our view +1-3% LFL growth for Sopra Steria next year, helped by the ramp-up of the NSandI contract in the UK, and a assuming a small rebound in aero in H2. That compares to consensus currently expecting +3.0% (Visible Alpha), but is probably in line with buyside expectations.
What happened? Q3 sales came in at EUR1,356.9m in the quarter, growing +0.0% organically at cc vs. cons at +0.2% LFL (details on p. 2), encouragingly decelerating only very slightly from +0.4% LFL in Q2 with weaker performance in Europe offset by small beats in the UK and Solutions . France decelerated to -1.2% LFL in Q3 (Q2: flat), impacted by PLM down close to -13%, which we suspect reflects the aero sector potentially further decelerating from Q2, in line with peers'' comments . The UK was a bright spot growing +2.3% LFL, unexpectedly re-accelerating from -0.7% LFL last quarter, helped by financial services, the public sector, and NHS, echoing encouraging comments from Accenture . Europe was a bit disappointing, down -0.5% LFL while we were still expecting positive organic growth (BNPPE: +1.6% LFL), likely impacted by Germany despite limited exposure to the auto sector. The comment around ''buoyant'' growth in Scandinavia in particular is positive following TietoEvry''s recent warning, showing SOP is benefiting from past contract wins (Politiet, Sporveien) . Solutions were just up +3.9% LFL on the back of strong growth in HR (+7.5% LFL) Guidance on revenue and adjusted EBIT are unchanged, with revenue stable YOY LFL, adjusted EBIT margin of 9.7%, and FCF of c. EUR350m. Staff attrition reached 13.2%, down from 15.1% last year and headcount was flat YOY LFL. BNPP Exane View: Following a series of profit warning from peers (Alten, TietoEvry, Capgemini etc...), it''s encouraging to see Sopra Steria 1/ does not mention further unexpected deceleration in its scope of activities, and 2/ maintains the FY 24 guidance on all metrics, showing again the resiliency of the company''s model, helped by a very limited exposure to the auto sector, and market share gains (Scandinavia). The positive surprise in the UK also bodes well for the prospects of a growth acceleration in the business unit next year. The stock has come down c. -10% in the last month on...
We expect LFL growth in line with cons for Q3 We do not expect Q3 (31 Oct) to be a major catalyst for Sopra Steria''s shares. We understand from our latest conversations with the company that July and August were broadly in line with the company''s expectations, with July also seeing good deal-signing momentum (possibly in defence). France should benefit from 2 additional working days YOY in Q3, up from 1 in Q2, but we assume this is offset by Airbus declining more than in Q2 (we model Airbus in France -10% in Q3 vs. -6% in Q2). We model +0.3% organic growth at cc for the quarter, which is in line with consensus, though our total revenue is -1% below, likely due to lower contribution from Ordina. Our current base case: +2-4% organic growth guidance for FY 25 Given the recent stable business trends highlighted by the company, our current base case for FY 2025 is for +2-4% organic growth guidance, in line with the initial guidance provided for FY 2023. We now model +3.2% LFL group growth next year, notably led by +1.7% in France (+3.5% ex-Airbus) and +5.0% in the UK (+3% underlying plus 2% from NSandI ramp-up). Details on p. 2. Next catalyst: CMD on 12 December With the partial sale of Sopra Banking Software (SBS) and Axway''s stake now completed, we expect Sopra Steria to generate a slight net cash position at year-end 2025. This should leave room for SOP to deploy at least EUR1.5bn for MandA in the next three years and reach close to EUR8bn in total revenue by 2027, potentially driving mid-single-digit EPS accretion. We thus expect management to highlight their MandA plans at the CMD, but also to provide details on internal transformations (e.g. how to better address the banking vertical without SBS) and the consulting push. At 7.0x NTM EV/EBIT vs. 8x LT average, valuation is attractive in our view, and although we cut our adjusted EBIT estimates for FY 2025-26E by c. -1% on the back of slightly slower growth expectations (details p. 2), we''re still 2-3%...
We have adjusted our revenue estimates to align with Sopra Steria''s recent changes in scope, notably the netting of part of Ordina''s revenue (IFRS 5). Our adjusted profit forecasts are unchanged. We do not consider the changes to be material; our rating is unchanged.
France and Airbus in particular weighing on short-term outlook... Sopra Steria''s (SOP) sales warning on 18 July shone a harsh light on the company''s high dependence on France and Airbus and its ecosystem Airbus is c. 9% of revenue). As both tires went flat, Sopra Steria had to cut organic growth expectations from +3-4% to flat this year. ...but midterm prospects remain bright Although Airbus is unlikely to contribute to Sopra Steria''s growth until 2026, other factors we outlined in our upgrade note remain intact: CEO confirmed trends in Defence remain strong, consulting could rebound later this year or early 2025 as comps ease, and the NSandI contract in the UK should ramp-up in Q1 2025. Also, the guidance for flat organic growth HoH in H2 despite 2 additional working days now leaves risk skewed to the upside, in our view. Investors remain constructive on the name Investors we talked to after the warning generally saw the share price reaction on Friday (down c. -8%) as overdone, and we sensed temptation from holders to reinforce their positions, although we believe it may take several months for investors more remote to the story to come back to it. Valuation attractive, next big catalyst is the December CMD SOP now trades on 7.0x EV/EBIT 2025E, which we find attractive vs. 10yr NTM average of 8.5x (see p. 2). The next catalyst is the December CMD, where management is likely to highlight MandA plans to accelerate the group''s transformation towards higher value-add services. Growth acceleration in Q1 2025 as well as MandA are more catalysts next year. That said, in the short-term uncertainties related to the political situation in France, Airbus, and the midcap status of the group are likely to keep the risk premium elevated on the stock, which we now reflect in our DCF by increasing our WACC from 9.6% to 10.1%. We cut our TP to EUR245 (from EUR271). At our TP, the stock would trade on 9.4x EV/EBIT 2025E vs. CAP currently at 10.1x (12.9x at our TP).
No growth acceleration in Q2... or in H2 either Sopra Steria issued a sales warning yesterday after market, citing the political situation in France, a lack of (previously expected) acceleration in Aero, and a delay in the ramp-up of a significant contact in the UK (NSandI) impacting Q2 revenue growth and the outlook for H2. As a result, the company expects similar growth in Q2 as in Q1 (+0.3% LFL), and no significant rebound in H2 (from +4pp HoH expected previously). Temporary headwinds led to the warning CFO Etienne du Vignaux explained on the call that the delta between consensus'' expected +2.8% LFL growth for FY 2024 and the revised outlook for ''stable organic growth'' is explained 30%/25%/25%/20%, respectively, by 1/ the ''wait-and-see'' attitude of customers in France (3-9 months impact assumed), 2/ slower pace of ramp-up with Airbus, for which growth is unlikely to turn meaningfully positive before late 2025 to 2026, 3/ delayed contract ramp-up in the UK (now expected to ramp in Q1-Q2 2025), and 4/ other factors spread over the group. Changes to our estimates We have cut our estimates to reflect Sopra Steria''s revised guidance, and now expect +0.3% LFL growth for FY 2024E, and a rebound to +3.9% LFL in 2025E. We still expect adjusted EBIT to grow by +5.4%/9.1%/8.9% respectively over 2024-26E. All in all, our adjusted EPS estimates go down by 5-7% over 2024-26E (details on p.2). Outperform maintained, TP cut to EUR271 (from EUR290) Although SOP''s sales warning is disappointing, we think it was partially expected by the market following French elections and the successive warnings of Airbus and Dassault Systems. Growth is delayed but not cancelled, and the fundamentals of the company remain intact, paving the way for a growth re-acceleration next year. We maintain our O/P rating, and cut our TP to EUR271.
Sopra Steria has started to change for the better but its transformation towards value over volumes is still in its infancy. We expect this evolution to accelerate and forecast 10% EPS CAGR 24-27E. The CMD in Dec-24 and potential MandA from 2025 are key catalysts. We upgrade to Outperform. Clear drivers to growth acceleration in H2 In the short term, we see clear drivers to SOP''s expected +4pp HoH LFL growth acceleration in H2: working days impact, Airbus returning to growth YOY, and the NSandI ramp-up should add 2pp of growth in H2 and implies 2pp underlying growth acceleration, which seems conservative vs. CAP. Consulting, Aero and Defence to drive growth and profitability in the midterm Sopa Steria has big ambitions in consulting, aiming to double revenue to c.EUR1bn by ''28. Growth levers are clear: pricing remains 10-30% below peers, and the hiring of 70 partners and directors in 2022-23 bodes well for future volume growth. In Defense, SOP should benefit from increased government spending in France and the UK (7%e 2024-30 CAGR), and market share gains. CMD in Dec-2024: EUR8bn sales including potential MandA, 11% adj EBIT margin by 2027? We believe SOP remains a ''MSD grower'' in the midterm. With margin accretion from consulting/AandD, the partial sale of Sopra Banking Software, and the end of the SFT JV, we see room for 11% adj. EBIT margin in ''27e (BNPPE: 11.6%e), implying c. 10% adj. EPS CAGR ''24-27E. Including potential MandA, SOP could target EUR8bn sales by ''27e. Upgrade to Outperform, TP lifted to EUR290 (from EUR240) With an increased focus on value over volume, Sopra Steria is on its way to entering the big league of pan-European IT services players, as the December CMD should further highlight. This could help the 30% discount vs. CAP on EV/EBIT to narrow. We upgrade to Outperform and raise our TP to EUR290 (DCF-based), driven by higher growth and margin expansion expectations mid-term. At our TP, Sopra Steria would trade on 10x EV/EBIT...
No positive surprise in Q1 2024 Sopra Steria did not deliver any positive surprises with its Q1 24 sales. Total revenue came in at EUR1,587m, up +13.8% YOY including +0.3% organically at cc, in line with previous management''s message for ''stable'' growth in Q1 but below our own +1.7% LFL estimate. While the UK delivered very strongly again (+7.4% LFL), LFL growth in France (-2.6% LFL) and Banking Software (-4.1% LFL) dropped more than we anticipated. Trough confirmed CFO Etienne du Vignaux confirmed on the call that Q2 should see slightly better growth (BNPPE: +1.6% LFL), with a positive working day impact and consulting stabilizing (Q1 24: -7% YOY). For H2, the group remains confident that growth can accelerate by 4pp HoH thanks to easier comps in aero, NSandI ramping up in the UK, and a positive impact from working days (+2 YOY in H2 vs. flat in H1 YOY). While the reiteration that Q1 was the trough is reassuring, this nonetheless confirms that growth and margin expansion will be back-end loaded this year. Change to our estimates We have cut our LFL growth estimate for FY 24 from +3.6% to +3.2%, reflecting a slower start than we anticipated. This is offset by slightly higher margin expansion forecasts, leaving our EPS for 2024-25E largely unchanged. Neutral maintained, EUR240 TP Sopra Steria is changing for the better, as demonstrated by the recent market share gains in the UK and focus on consulting. However, we think the material growth acceleration required to achieve the FY 24 guidance is unlikely to show in the numbers before the group reports Q3 sales on 31 Oct, while the CMD will only take place mid-Dec. With few short-term catalysts ahead, we keep our Neutral rating and adjust our TP down to EUR240 (from EUR242) on lower growth.
We slightly adjust our quarterly estimates. We now expect +1.7% LFL growth for the group in Q1 2024 and +3.6% for FY 2024 (guidance: +2-4%), up from +3.4% before. We do not consider the changes to be material; our rating is unchanged.
Growth accelerates in Q4 Sopra Steria met or exceeded all its targets for FY 2023 and Q4 surprised positively: the company reported +6.2% LFL growth in the quarter, accelerating from c. +4% in Q3 despite a sluggish IT services environment. France was the only business unit to show growth deceleration, while the UK re-accelerated strongly to +13% LFL despite limited contribution from the NSandI contract win (c. EUR4m, i.e. c. 2pp of growth). Adjusted EBIT in H2 2023 came in 4% ahead as a result, and FCF for the year was also very strong at EUR390m, helped by customer prepayments. We model +3.4% LFL growth for FY 2024 Sopra Steria guides for +2-4% LFL growth in FY 2024, 9.5-10.0% adjusted EBIT margin, and EUR350m FCF. Management expects a ''stable'' Q1, with gradual acceleration in the following quarters. Considering the strong Q4, the former may prove conservative: we model +3.4% LFL growth for FY 2024, and +16% adjusted EBIT growth including Ordina. Change to our estimates We now integrate Ordina to our model for 2024 and beyond; our adjusted EBIT estimates (Sopra Steria definition) go up by 10-11% over 2024E-25E, including 7-8% from Ordina and 3-4% from an organic increase in our estimates following the Q4 beat. Our EPS estimates (BNPPE definition) go up by +5-6% as we also include the corresponding financing cost to Ordina''s acquisition. Neutral, TP up to EUR242 Sopra Steria again delivered a strong quarter, boding relatively well for FY 2024 despite a sluggish macro environment, and the value uplift strategy management is infusing seems to be bearing fruit. However, at 7% FCF yield 2024E post-Sopra Banking Software divestment, we see the shares as fairly valued for now. We increase our mid-term margin estimates in our DCF and roll it over by a year; our TP increases to EUR242 (from EUR200) as a result.
The increase in organic revenue (+4%) was below expectation in Q3 23. IT services organic growth slowed sequentially, in particular in France and the UK. Inversely, the software activities remained solid. The 2023 guidance of organic revenue growth of at least +6% was reiterated. A growth rate of +4% is expected in the Q4 23 given no negative calendar effect in France, the return to double-digit growth in the UK thanks to the signature of a multiyear contract and further growth in software.
Disappointing Q3 sales Sopra Steria reported disappointing Q3 sales with total revenue growing +10.6% to EUR1,345.5m, including +4.0% organic at cc vs. cons. expecting +4.8%, ending a streak of over-achievements. France, the UK, and Other Europe were all slightly softer than we anticipated, respectively impacted by the banking vertical, high comps, and Germany (also hit by a slowdown in banking, albeit still growing). We cut our FY 2023 LFL growth estimate from +6.8% to +6.1% We still think Sopra Steria will be able to achieve its FY 2023 growth guidance of at least +6% LFL despite the Q3 miss. This requires Q4 LFL growth of at least +4%, in line with Q3. However, Q4 will benefit from a few tailwinds vs. Q3: 1/ no more working day impact (-1 in Q3 YOY), which should add 1% of YOY growth; 2/ the UK accelerating thanks to recent contract wins adding 70-80bps of group LFL growth; and 3/ stronger growth from SFT in Other Europe. We believe this should be enough to offset incremental deterioration in underlying growth trends in the quarter, and model a slight acceleration in Q4 growth to +4.4%, leading to +6.1% for the FY 23 (from +6.8%). All eyes on 2024 Sopra Steria benefited this year from its relationship with Airbus, and a favourable vertical mix. However, Airbus is slowing down, and so is the banking sector (20% of Sopra Steria''s revenue), all while management has to work on the integrations of CS and Ordina. In that context, we would expect the group to be cautious when it guides on FY 24 growth in February: at this stage, +2-4% LFL growth guidance range for next year is our base case scenario. Neutral maintained, TP down to EUR200 (from EUR204) We have cut our TP to EUR200, reflecting the top-line miss and a more cautious view on margin improvement in 2024E (we now model 9.7% EBITA margin next year, down from 9.8%). However, with the banking vertical potentially decelerating, further execution risk related to MandA, and uncertainty related...
Strong H1 results confirm a change in status Sopra Steria''s H1 results reported last week confirmed a change in status for the company: the 12% LFL growth in Q2 in the UK showed it is now gaining share in the country, while the CEO''s indication of 6% price growth YOY in France in H1 illustrates his strategy of focusing on higher-value projects is working. As a result, and despite an IT services market that the group''s management sees slowing, the company grew +7% LFL in Q2, outpacing Capgemini at +4.7%. Confident message on c. 10% adjusted EBIT margin in 2024 On the road with us in Paris post-results, management reiterated that group margin should expand HoH in H2: although the price vs. wage inflation delta should narrow and margin in the UK may come down HoH, higher license sales at Sopra Banking Software and better margins in other divisions should help. We model 9.9% margin in H2, and 9.4% for the FY 2023. For FY 24, CEO remains confident the group can achieve c. 10% margin, with all divisions expected to improve YOY: pricing should remain a driver, and so will consulting, synergies with CS, real estate rationalisation, and the continued streamlining of RandD efforts at Sopra Banking Software. Changes to our estimates We have increased our LFL growth estimate for FY 2023 to +6.4% from +4.8%, and adjusted EBIT margin to 9.4% from 9.1%. For next year, we cautiously expect +3.3% LFL growth and 9.8% margin, assuming the European macro continues to deteriorate. This lifts our adjusted EPS over 2023-24E by 6-7%. Neutral maintained, TP up to EUR204 We think H1 results confirm Sopra Steria''s change in status, and we like CEO Cyril Marlarge''s focus on delivering higher value to customers to drive better profitability in the midterm. Valuation is undemanding today, but midcap IT services names can go to double-digit FCF yield in more severe downturns: we thus think better entry points may materialise in the coming quarters. We keep our Neutral rating,...
Q2 23 organic revenue growth was solid (+7.1%). The UK and Other Europe divisions were the most dynamic and aerospace, defence and security and the public sector were fast-growing. In H1 23, the operating margin on business activity improved strongly (+0.8pt to 8.8% of revenue). The 2023 guidance was upgraded for organic revenue growth and unchanged for the other metrics. Sopra Steria is in talks with the Cabinet Office which has a put option to sell its 25%-stake in SSCL.
We update our model following Sopra Steria''s Q1 revenue publication on April 28 and our recent contact with the company. We feel good about the company''s ability to achieve at least the top-end of its FY 2023 +3-5% organic growth guidance unless European macro badly deteriorates in H2, but at c. 10x EV/EBIT 2023E, in line with CAP, we think the stock is fairly valued. We increase our organic growth estimate for FY 2023 to +4.8% from +3.7% With c. +9% LFL growth in Q1, Sopra Steria delivered a strong start to the year and again beat sell-side expectations (+5.8%). Although we would expect the pricing boost to topline (5-6pp contribution to growth in France in Q1) to ease in the coming quarters as comps get tougher, the c. 5% LFL headcount growth in Q1 gives us confidence that Sopra Steria can deliver at least the top-end of the its +3-5% FY 2023 LFL growth guidance. We now expect +4.8%, up from +3.7% prior to the Q1 release. However, as we bake-in strong FX headwinds, our 2023-24E EPS barely move. IA comes into play Generate IA could have an impact on several of Sopra Steria''s business lines, although the group has already been collaborating with IBM''s Watson on chatbots for example. In BPO (13% of revenue), SOP sees generative AI as a continuation of other automation technologies already in use, such as ML and RBA. App development could also be impacted, but developers are unlikely to be replaced altogether. Also, Sopra Steria has already tested ChatGPT for its HR solutions, but so far, the result has been poor. From a high-level perspective, we would think that as long as companies'' desire to externalise non-core business processes and IT to Sopra Steria and peers remains intact, the potential headwind should be manageable. The key question (and still open, in our eyes) is to what extent generative AI can lead to the commoditisation of these services. Neutral maintained, TP up to EUR189 We have updated our DCF, rolling it forward by 6...
Q1 23 was strong with organic revenue growth of +9.1%. The overall growth was a mix of higher volume and strong price increases reflecting the inflationary context and higher added value of the services offering. In France (42% of the total), Sopra Steria benefited from strong demand in defence/homeland security, aeronautics, transport and the public sector which represent a resilient baseline in the coming quarters. The 2023 guidance was unchanged except that organic revenue growth should be at the high-end of +3-5%.
Sopra Steria has announced an offer for all the shares of Ordina in the Netherlands. This represents an investment of €518m funded by cash and debt. At year-end 22, Sopra Steria had cash & cash equivalents of €356m and a credit facility of €1.1bn. This operation is positive for the Group in that it offers diversification in Benelux which is a growing market (high single-digit growth) and significant revenue synergies (undisclosed figure) in various sectors. The operation should be accretive on EPS in 2024-25.
We hosted Sopra Steria Group CEO, Cyril Malarge, Head of IR, Olivier Psaume, and IR, Amelie Leblanc, on our annual Paris Tech Tour last week. Management is confident for 2023 despite macro uncertainties, but also on the 10% EBITA margin target for 2024. More consulting is the main driver to 10% EBITA margin target in 2024 Sopra Steria is fully focussed on adding more value to its customers. One of the main levers is to keep pushing on consulting. Besides its own brand (Sopra Steria Next), Consulting at Sopra Steria now has its own go-to-market strategy, led by the former head of banking for Europe at Accenture. Increasing consulting in the revenue mix (15% margin vs. 8.9% reported for the group in 2022), is expected to be a much stronger driver than offshoring to reach 10% EBITA margin in 2024. Confident for 2023 despite macro uncertainties CEO Cyril Malarge highlighted his confidence for this year despite macro uncertainties. While the low-end of the +3-5% LFL growth guidance for 2023 implies a sharp deterioration in business activity in H2, the high-end embeds ''business-as-usual'' but no stellar assumptions. Still room for MandA in Europe The group still sees room to grow inorganically in Europe through MandA, notably in France or in Benelux, where it is now one of the top 10 IT services providers with the acquisition of Toabania, which is a key region given its importance for the public sector (EU) and defence (NATO). Neutral maintained Sopra Steria management confirmed its optimism for the next couple of years, and CEO Cyril Malarge instils an impression of honest confidence in the strategic direction of the group for the years to come. The stock has reached new highs following the Q4 release though, and at 10.2x EV/EBIT 2023E vs. CAP at 11.4x (BNPPE definition of EBIT), we see limited room for further upside in the short-term. Neutral maintained.
Strong 8% organic growth in Q4 Sopra Steria delivered +8.0% organic growth at cc in Q4 2022, exceeding expectations by 2pp as France and the UK surprised again positively. Momentum in the UK seems particularly strong, and although strong visa processing probably helped again in the quarter, the CEO also mentioned on the call several contract expansions in the country, including back-office services for the NHS. H2 adjusted EBIT was also 5% better, driving FY 22 results above guidance on all metrics. FY 2023 guidance demonstrates Sopra Steria''s resilient profile Sopra Steria is guiding for +3-5% organic growth and adjusted EBIT margin 9% for FY 2023, which compares well (relative to the recent historical growth gap) to CAP and Accenture. We believe this reflects 1/ the vertical exposure and business mix of the company (retail and insurance combined represent 8% of 2022 revenue, same as consulting); but also 2/ market share gains with some accounts (Airbus in France, public sector in the UK). We now model +3.7% LFL growth in 2023, 9.0% adjusted EBIT margin We raise our estimates to factor in the better-than-expected revenue and adjusted EBIT guidance. We now model +3.7% organic growth at cc and 9.0% adjusted EBIT margin for 2023 (from +2.0%, and 8.8%, respectively). This, combined with a lower effective tax rate as indicated in the presentation for 2023-24 (26% and 24%) lead us to revise our adjusted EPS up by 8-9% over 2023-24E. Neutral maintained, TP up to EUR176 (from EUR165) Sopra Steria''s Q4 2022 and FY 2023 guidance have demonstrated the company''s resilience, with the potential end of the SFT JV with German banks the only element slightly troubling the waters. We raise our TP to EUR176 (DCF, 9.6% WACC), but keep our Neutral rating. Although Sopra Steria managed (again) to surprise us positively, from a tactical perspective (and as the August-October 2022 sell-off demonstrated), we would find it too risky to turn more bullish on the stock...
Sopra Steria had strong organic revenue growth in Q4 22 (+8%) and no sequential slowdown. In 2022, organic revenue increased by +7.6% above guidance and the operating margin on business activity improved to 8.9% of revenue (+0.8pt). Sopra Steria benefited from strong demand in consulting services, product lifecycle management, cybersecurity services and its solid positions in aeronautics/defence & security, the public sector and transport. This should continue in 2023. CS Group should be integrated on 1 March 2023.
We take the opportunity of the recent Accenture release to update our model on Sopra Steria and consolidate the CS Group and Tobania acquisitions. We think Sopra Steria''s profile should remain fairly resilient in a downturn, although potential risk of a disappointment in Banking Software and Other Europe (Sparda JV) keeps us from taking a more constructive stance. Neutral. Resilient profile into 2023... Accenture released its FQ1 2023 on Friday last week, mentioning that Strategy and Consulting revenue, which was up low single digit in the quarter (ended November 2023), would likely be down YOY in FQ2 (ending February 2023) before rebounding again in FH2 23. We think Sopra Steria will remain more resilient in 2023: 1/ Consulting is 10% of top line and focussed on digital transformation rather than strategy; 2/ Defence exposure (c. 20% of group revenue, notably Airbus) should remain a tailwind; 3/ revenue from the debt collection platform should be a 1-2% tailwind to revenue growth in the UK; 4/ juniorisation remains a lever to improve margins. ... but concerns remain SOP expects to sign c. EUR20m of highly profitable licenses in Sopra Banking Software in Q4, which might prove difficult in a deteriorating banking software environment. Secondly, issues remain around the digital transformation of the Sparda banks, and while soft EBIT contribution from the JV has so far been more than offset by beats in pure IT services, this might not be the case next year. Neutral maintained, TP down to EUR165 We have added CS Group and Tobania to our model, and now expect +2.0% LFL growth at the group level in 2023E, and +8.4% on a reported basis. We raise our EPS 2023E and 2024E by 8% and 4% respectively as a result of the consolidation of these acquisitions, as well as lower expected PandL tax rate (29% vs. 33% previously in our model). We continue to value the shares with a DCF, in which we raise the WACC to 9.6% from 9.2% previously to account for the recent...
Growth will slow, but by less than we previously expected Sopra Steria does not lack of margin levers for 2022 Management sticks to its 10% operating margin target for 2024
In Q3 22, organic revenue growth was significant (+7.7%) thanks to all the divisions except for Sopra Banking Software which is expected to benefit from strong licences revenue in Q4 22. Sopra Steria revised upwards its organic revenue growth forecast for 2022 to +7% (vs +5-6% previously) taking into account the strong achievement in Q3 22 and organic growth of +6% in Q4 22. Sopra Steria remains confident of its resilience in the event of a deterioration in the economic situation.
SOPRA STERIA GROUP | BUY | EUR200 • Growth momentum remains solid • Q3 sales slightly ahead of expectations • As for peers, decline in staff attrition shows market overheat is coming to an and • Company guidance for 2022 reiterated
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