Leonardo S.p.A. - Aerospace, Defence and Security

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Leonardo SpA (tickers: LDOF and LDO)

Leonardo is a global industrial group that develops technological solutions in the aerospace, defense, and security sectors. Leo is involved in significant international strategic projects and acts as a trusted technology partner for various governments, defense authorities, institutions, and companies.

By the way, Leo is from Italy. :slight_smile: :it:

Leonardo’s Business Areas

Helicopters:
Leonardo designs and manufactures helicopters for civilian and defense use. They serve, for example, in rescue, law enforcement, and military missions. The company also develops new technologies, such as electric-hybrid aircraft.

Defense Electronics:
The company provides multidisciplinary solutions for surveillance, security, and critical infrastructure protection. Sensors, intelligence systems, and various Leo solutions ensure system efficiency, and it also offers technologies for drone traffic management and countermeasures.

Aircraft:
Leonardo develops and manufactures modern aircraft, from training to peacekeeping. The company’s aircraft are high-performance, utilize sensor technology, and require low maintenance. Simulators are also included, continuously improving pilot training.

Aerospace Structures:
Leonardo manufactures various structures for commercial and military aircraft. It is involved in major projects such as the Boeing 787 and Airbus A220. The company produces composite and metal components for leading aircraft manufacturers.

Space:
Leonardo covers the entire space industry value chain: satellites, orbital structures, sensors, launch systems, and control services. The company has over 60 years of experience in the field and strong cooperation with Thales & Avion.

Cyber & Security:
Leonardo develops innovative cyber and AI solutions for the defense, space, and security sectors. Its European expertise is based on its own products and Trusted Cybersecurity experience.

The company has been heading in the right direction for some time:

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(Free Operating Cash Flow (FOCF): The cash flow available to the company after deducting funds needed for investments.)

And a bit more number crunching:

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Leo as an investment target

Well, the main reason is this situation. This reason does not need further elaboration.

Leonardo is interesting due to its diverse product portfolio and strong market position. The company operates in the hyped defense and aerospace sectors, and its products had strong demand even before these latest developments. Compared to competitors like Rheinmetall or Saab, Leonardo has a broader product range and a strong position in several different markets, making it a more stable investment target.

It is also reassuring how established a player it is in the aerospace, defense, and security sectors, and it naturally benefits from the continuous growth of global defense budgets. Leo has a strong position in the European markets and truly important strategic partnerships (e.g., Thales, Airbus), which support long-term growth.

Leonardo invests in innovations, such as hybrid helicopters and cybersecurity, which create new revenue streams. A stable order book, improved profitability, and a commitment to technological leadership through innovation apparently make it competitive in its field.

Risks:

Leonardo’s key risks relate to defense sector regulation, geopolitical tensions, and market fluctuations.

The company operates in high-tech fields where product development delays and budget overruns can affect profitability. Various corruption risks and strict regulatory requirements can also cause reputational damage and legal risks. Leo manages risks with a comprehensive control system, but dependence on public orders and international agreements can bring uncertainty to long-term growth.

Guidance:

Well, a lot is happening right now, very recently. The company previously, before these latest developments, stated that it anticipates growth, improved profitability, and strong cash flow supported by demand in the defense and security sectors. Aerostructures are recovering, but satellite manufacturing still faces challenges or something similar.

The stock has surged, and for a reason, which is why valuation multiples have become sick, but for a reason. :smiley:

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About the industry in general

https://x.com/UkrReview/status/1896307554982277569

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https://x.com/Speculator_io/status/1896580497267966310

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https://x.com/PenttiJokinen/status/1897552247933767873
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I do not own this chain, at least not yet, as of 8.3.2025.

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Kurssien ja niiden muutosten kyselyt, kauhistelut ja hehkuttelut (Osa 3)
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In fact, I just brought this up today as an interesting company regarding the EU’s decision on an 800 billion plan to strengthen the EU’s defense.

Excluding Hungary.

Leonardo employs 58,000 people worldwide, the majority of whom work in Italy.

Quite a few defense companies have overreacted strongly. Leonardo’s valuation is quite moderate compared to others. Of course, the entire sector is also large.

Leonardo exceeded its own guidance in 2024, and orders grew by 12.2%, reaching 20.9 billion euros, especially in the electronics and helicopter sectors. The order backlog is sufficient for 2.5 years.

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Free cash flow enabled a significant debt reduction to 1.8 billion euros. The company also plans to double its dividend compared to the previous year.

Leonardo’s CEO Cingolani has also stated that he aims to strengthen its position in global competition and intends to compete against the United States and China. This is sought by joining forces with other industry players.

Leonardo already has joint ventures and stakes in the following companies:

  • MBDA
    Missile systems
    Leonardo 25%, Airbus Group and BAE Systems both 37.5%
  • Telespazio, 67%
    Satellite services, Thales owns 33%
  • Thales Alenia Space, 33%
    Satellite services, Thales owns 67%
  • ATR 50%
    Turboprop aircraft, Airbus Group 50%
  • NHIndustries, 31%
    Helicopter manufacturing
  • Orizzonte Sistemi Navali 49%
    Shipbuilding, Fincantieri owns 51%
  • Elettronica S.p.A. 31.33%
    Electronic warfare
  • Avio, 29.63%
    Launch vehicles and space engines
  • Hensoldt AG, 21%
  • Eurofighter GmbH
    21% consortium for Eurofighters
  • Leonardo Rheinmetall Military Vehicles
    Specifically military vehicles for Italian needs. 50:50 ownership with Rheinmetall
  • Leonardo-Baykar

It’s a bit concerning that although orders, cash flow, and revenue were exceeded, the profit remained in line with guidance. Something therefore eroded the ability to generate profit. Hopefully, investments.

Italy’s defense spending in 2024 was 33.5 billion, which corresponds to 1.68% of GDP. This is below NATO’s recommendation.

Italian Prime Minister Meloni was one of those who supported exempting defense spending from EU budget rules and proposed raising common debt, very much in an Italian fashion. Previously, Italy was speculated to increase defense investments up to 2.5% if the EU approved the exemption of defense spending from the budget.

But Italy is Italy, and Italy is already over-indebted. Although it has planned to invest 8.2 billion in tanks, they might not necessarily come from Leonardo.

What’s interesting about Leonardo is the clear consolidation of European defense companies. Why aren’t Finnish companies involved in these consortia? They still seemed to have their own projects connecting the Baltic countries and the Nordic countries.

I’m also wondering how long this defense enthusiasm will ultimately last. For example, KNDS has considered an IPO. IPOs are typically a sign of overheating in that sector.

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Thank you very much!

Good that the thread started right away. :slight_smile:

Your message contained a lot of good and new information. :pray:

On Thursday, based on Pentti’s tweet, I did a poor man’s scan:

So I did a light, simple comparison and Leonardo made it through. I discussed this with a few people in the preceding days, and it was indeed an unfamiliar company to my discussion partners. Everyone knows Rheinmetall and Saab, even if they don’t invest, but this Leo was really unfamiliar to me too. So there’s a lot to research about this, and generally about this sector as well.

I’m actively following this thread too: https://keskustelut.inderes.fi/t/puolustustarviketeollisuus-vapaan-maailman-turva-vai-kuoleman-kauppiaat/30211?u=sijoittaja-alokas

But I’ll focus the Leo chatter here. :slight_smile:

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Quite a few people have been more seriously interested in the defense industry in recent days. For me, ChatGPT brought this up, but after I myself have also invested in the defense sector, I’ve come across this in many places.

I probably just haven’t paid much attention.

Has the market value quadrupled? That certainly makes one wonder.

That P/E of 24 isn’t terrible, when we recall those crazy corona years when the money taps opened. Of course, one would somehow think the defense sector would correct a bit when the first ones realize their profits.

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Investment decisions should be made purely based on factual information. Unfortunately, for my part, this didn’t happen, and a recent trip to Italy influenced me to put a small slice into this defense industry company. But isn’t emotion sometimes the best visionary :slight_smile: .

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I’m putting this here, so there’s no particular point for or against it. :smiley:

I tried to find the company’s ROE figures and its history, and this single figure, of course, doesn’t tell much when used alone. And I’m not good at making good interpretations of these.

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Key Ratios (unfortunately not calculated by me):

  • Average ROE: 9.05 %
  • Median ROE: 10.21 %

Below are various recent news items related to Leo. My exploration into the industry, and especially the company, is just beginning, so some things are still a bit unfamiliar. And I don’t yet fully grasp everything I’ve read. :slight_smile: The following items will inevitably contain a slight hint of repetition.

Here’s more about how Thales Alenia Space (TAS), a company partially owned by Leonardo, manufactured the high-resolution optical instrument for the CSO-3 spy satellite.

TAS is a joint venture between Thales and Leonardo, focusing on space technology, such as satellites and their systems. Leonardo was thus involved in the satellite’s manufacturing, even though Airbus had the primary responsibility.

https://www.reuters.com/business/aerospace-defense/europes-ariane-6-stages-first-commercial-launch-2025-03-06/

Leonardo and Turkey’s Baykar are establishing a joint venture for UAV drone production, filling Europe’s gap in unmanned systems. Baykar gains a foothold in the EU market, and the first product will be based on the Akinci drone.

The project does not compete with the Eurodrone program but could link to a GCAP fighter program in the future. The cooperation utilizes both companies’ existing production facilities.

https://www.reuters.com/markets/deals/italys-leonardo-signs-mou-with-turkeys-baykar-drone-joint-venture-2025-03-06/

Leonardo’s CEO Cingolani denies negotiations with automakers, such as Stellantis, regarding military production. According to him, the automotive industry could support defense production with certain components, but converting cars into tanks would be difficult. :smiley:

Europe is, of course, looking for ways to increase defense production, but the CEO emphasizes that the solution lies more in partnerships than in building new factories.

https://www.reuters.com/business/aerospace-defense/leonardo-ceo-denies-talks-with-automakers-military-production-2025-03-06/

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https://keskustelut.inderes.fi/t/puolustustarviketeollisuus-vapaan-maailman-turva-vai-kuoleman-kauppiaat/30211/319?u=sijoittaja-alokas

Leo’s results were published on 8.5. :slight_smile:

Leonardo S.p.A. improved its revenue and profit in the early part of the year, especially due to strong growth in the helicopter and defense and electronics segments. The company states that most of its businesses performed well, although challenges still arose, for example, in the space sector, but compared to last year, the development has been significant in my eyes, but expectations have apparently been for even better figures, etc.

Net profit was lower than a year ago, but this was only due to a one-time item in the comparison period. Without this one-time item, the result would have been strong, or so it was when adjusted. Leo also managed to significantly reduce its debt from the situation a year ago, and the order book also looks good.

My eyes got mixed up many times while reading the results. :smiley:

Company’s own materials

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