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
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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...
