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...
