Leonardo in Hensoldt: what the stock market, analysts and Profumo say

Leonardo in Hensoldt: what the stock market, analysts and Profumo say

Numbers, facts and comments after Leonardo joined the German company Hensoldt

Leonardo suffers in Piazza Affari (-2.3%) after the purchase of 25% of the German Hensoldt from the private equity fund Kkr.

On April 24, the Italian defense group announced that it had entered into an agreement with the American fund Kkr to buy 25.1% of Hensoldt, Germany's leading defense electronics company . The price is approximately 606 million euros, equal to 23 euros per share.

Hensoldt shares on April 23 closed at € 15.58 (+ 1.56%), up by 24% in the last month.

The agreement makes Leonardo the largest shareholder of Hensoldt together with Kreditanstalt Fuer Wiederaufbau, a subsidiary of the German state, which agreed in March to acquire a 25.1% stake in the company.

The move brings together two companies that have worked on the Eurofighter program and gives a boost to European consolidation in the defense electronics sector.

But analysts are critical: Leonardo closed the deal at a high price.

All the details.


As reported by Milano Finanza , Banca Akros confirms the buy rating, but cuts the target price from 9.5 to 9.25 euros per share. "The closing price of Hensoldt last Friday was 15.6 euros, which means that Leonardo has committed to pay a premium of approximately 47% for his share (195 million euros in absolute terms) taking into account that the target average of analysts on the German company is around 17.4 euros. The agreement values ​​Hensoldt 22 times the adjusted net profit for 2021 (109 million euros), when Leonardo itself, Akros points out, is trading 6.2 times (about four times as much) ”.


Instead, Intesa Sanpaolo places the rating on the share under review (under review) "considering the agreement closed at a high price" – reports Mf – because the acquisition value implies an ev / ebitda ratio of 12.1 times and a p / e ratio 36 times expected in 2021, "well above Hensoldt's current valuation, which has an ev / ebitda in 2021 of 8.9 times and ep / e 2021 of 24.4 times, while and the current ev / ebitda multiples Leonardo's 2021 are 4.5 times and a s / s 2021 ratio of 8.4 times, according to Factset ”.

Intesa recalls that, "if we consider that in December 2020 the German government acquired (through KfW) a 25.1% stake in Hensoldt at a price of 17.07 euros per share, which implied around 20% of the premium compared to value of Hensoldt at the time of the agreement ”,“ the value paid by Leonardo more than completely discounts Hensoldt's long-term growth prospects ”.


“Specializing in sensors, Hensoldt is the former German defense electronics division of Airbus, which was sold in 2017 to Kkr for 1.1 billion euros. The acquisition was considered by some to be a lost opportunity for the former Finmeccanica, at the time led by Mauro Moretti ”recalls Gianni Dragoni in the Sole 24 Ore. “Hensoldt was listed in September 2020 , the shares placed at 12 euros. In December, the German government decided to buy 25.1% of Hensoldt for 464 million, to defend the company from foreign assaults. Thus, through Kfw (comparable to the CDP), the German government has ensured influence in Hensoldt's choices thanks to the blocking minority. It should be noted that, with each step, Kkr has raised the selling price of the shares. The fund still holds 18% of the capital. According to authoritative sources, Leonardo presented the final offer on 9 April. There were also other contenders, especially the French Thales ”.

“To beat the French, Leonardo improved his offer twice”, underlined Dragoni.


According to Bloomberg , Leonardo's stake in Hensoldt could help both of them challenge the influence of French defense companies such as Dassault Aviation and Thales.

Leonardo and Hensoldt already collaborate on pan-European programs including the Eurofighter Typhoon fighter. The two companies, together with Spain's Indra, provide the advanced radar on the plane. Furthermore, Leonardo will thus be able to strengthen electronics also in Great Britain and Italy.


In the long term, the close relationship between the two companies could help pave the way for closer cooperation between the two sixth generation European hunting programs, Tempest (British-led with Italy and Sweden) and Franco-Fcas. German.

In the UK, Leonardo is one of the industrial partners working with BAE Systems on Tempest while Hensoldt is part of the FCAS consortium.

However, "synergies can materialize if the Tempest and FCAS programs merge, a relatively different scenario at the moment".

According to defense industry analysts, although the two programs are unlikely to converge, the respective aircraft would eventually still fly together as part of NATO.

With the consequence that the implicit multiples of the transaction are expensive and that "the synergies are not easy to extract, on the other hand, the strategic logic of the agreement is clear and the alternative would have seen the French competition of Thalès grow further" according to Banca Akros.


Leonardo's entry into the German Hensoldt as a shareholder with an Italian-German equal majority, alongside the German government which recently acquired the same stake through the public 'safe' KfW, "is another step forward in the defense industry system. European CEO, Alessandro Profumo, commented with the Financial Times .

The Italian aerospace, defense and security group already had "a certain presence" in Germany, but it is a country where it "could improve", Profumo pointed out. "Germany is an incredibly important country", he added, recalling that in his previous role as CEO of UniCredit he had said that "you cannot be European without Germany". "It's the same in this case," he added. The agreement – comments the FT – will strengthen Leonardo's position in the three main defense markets in Europe: Italy, the United Kingdom and Germany. And it is also, according to industrial analysts, an important step for what could be a series of strategic partnerships in defense electronics.

“Among other things, it is not excluded that Leonardo, in the coming months, may further increase his share, demonstrating his leading role. But such an agreement cannot be closed without the political endorsement of the two governments ”, writes Repubblica .


In the meantime, Profumo has indicated to the FT that the company is ready to proceed with the listing "of Drs" as soon as market conditions allow it.

The hypo on Wall Street of the American company is connected to the operation in Germany because Leonardo itself reassured the sustainability of the 606 million investment, indicating that "it will maintain a solid financial structure also through the sale and listing of Leonardo Drs".

The listing was supposed to take place last month, with the aim of listing 22% of the US subsidiary to raise $ 702 million for acquisitions, but was postponed to the last minute "in a possible reaction to uncertainty about defense spending. of the United States, ” Defense News speculated .


However, the U-turn on Drs did not stop the agreement for the acquisition of the stake in Hensoldt, nor did it stop last week's announcement of the purchase of a 30% stake in the Italian company Gem Electronics , a supplier to Leonardo's long term and a manufacturer of air and ground radar, electro-optical sensors and inertial systems.

Under the agreement, Leonardo can exercise an option to purchase the company in 2024. "These two transactions, completed in a few days by Leonardo's board, project the company in Europe as one of the main industrial companies in the radar sector, components and systems engineer, with a top-level customer portfolio ”commented Aurelio Giansiracusa on Start .

“Strengthening it with respect to Thales, Indra and BAE Systems, covering the major market segments also with absolutely niche products”.

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/innovazione/leonardo-in-hensoldt-cosa-dicono-borsa-analisti-e-profumo/ on Mon, 26 Apr 2021 14:05:57 +0000.