Solid as a rock

Our view: a positive surprise. Orders have come in materially ahead of expectations, driven by defence. Sales are in-line but ytd strength (8% org) from the usual suspects (Defence and Avionics) drives a guidance upgrade for the FY (to +6-7% org from 5-6%). Cyber growth is weak as expected (H1 -4%, Q2 -7%), so we look for an update on FY expectations on the call, although management has called out an expected ramp-up in H2 in the release. EBIT came in slightly ahead, with Aerospace the standout (margin 9.1% vs cons 7.8%), with Space margins said to have seen 'significant improvement', although not quantified – another topic for the call. Overall, these results have come in ahead of expectations, and with sentiment muted ahead of the print, we'd suggest the shares should outperform today. Sales guidance upgraded: to +6-7% organic from +5-6%, supported by ytd performance (H1 org growth 8.1%) from ongoing strength in Defence (H1 org growth +12.7%) and Aerospace (H1 org growth +5.8%). This was offset by ongoing weakness in Space (not quantified in the release) and Cyber and Digital, where sales fell 2% organically in both H1 and Q2. Of this, Cyber was -4% in H1 (-7% in Q2), with Products (80% of sales) impacted by the merger of Imperva sales force, and Services impacted by soft demand. We note Cyber Products is expected to see a progressive ramp-up in H2. Other guidance items confirmed (book-to-bill >1x, adj. EBIT margin 12.2%-12.4%). Orders materially beat: Q2 orders of €6.6bn are up 17% org yoy vs cons €5.8bn (1% growth implied, a 14% beat) and MSe at €4.6bn (-20% implied). This was driven by Defence (+50% org and 35% ahead of cons) which included 5 large (>€100m) orders, of which only one was publicly flagged ahead of results – the order for 26 Rafale Marine to India with a value in excess of €1bn (MSe €900m). EBIT modestly ahead: Aerospace margin of 9.1% in H1 benefited from double-digit margin in Avionics as well as 'significant improvement' in Space (not quantified). Cyber & Digital margins were broadly flat yoy despite Cyber weakness, demonstrating solid pricing discipline. Defence margins are in-line. EPS a 5% beat: driven by lower net interest costs (lower net debt), despite higher taxes due to the France surcharge (€60m).