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Investing.com -- Berenberg on Wednesday initiated coverage of Indra Group SA with a “buy” rating and a €41 price target, about 20% higher than its Tuesday close of €34.38.
The brokerage applied a discounted cash flow model in its valuation, noting that despite shares nearly doubling this year, the stock “is too cheap to be ignored” given the growth prospects from defense spending.
At the Madrid close, the Spanish multinational had a market capitalization of €6.07 billion and an enterprise value of €5.91 billion, with 177 million shares outstanding.
The brokerage flagged European defense budgets as a major driver for Indra. NATO allies committed in June to raise defense spending to 5% of GDP by 2035, including a 3.5% core requirement.
Analysts estimate that European defense spending must grow at a 6.5% compound annual rate through the next decade.
Spain, which devoted just 1.25% of GDP, about $20 billion, to defense in 2024, “Spain has among the lowest military spend of all the NATO members,” the brokerage said.
At current GDP levels, Spain would need to spend about €10 billion more annually to meet NATO’s previous 2% threshold, and could reach as high as $96 billion by 2035 under the new targets.
Indra, founded in 1993 as part of a government initiative to consolidate defense and IT know-how, is reshaping its business to capture this shift.
Management plans to allocate more than 75% of capital to its Aerospace and Defense division and generate over 60% of group EBITDA from it by 2026.
“The need for Spain to increase its military spending is already translating into new business for Indra,” Berenberg said, noting the company expects to double its defense order intake in 2025.
Spain in April announced 31 modernization programs worth €3.8 billion. Berenberg estimates Indra could directly bid for about 60% of them, or €2.2 billion.
The brokerage forecasts defense sales of about €1.76 billion in 2026, implying a 15% organic revenue growth rate between 2023 and 2026, above the IT and defense company’s prior 12% target.
Indra also runs Minsait, its IT services arm, which accounted for 62% of turnover and 40% of EBIT in 2024. While defense is increasingly central, Berenberg noted that “Minsait has room for further margin improvement,” projecting EBIT margins of about 7% in coming years through portfolio rebalancing and efficiency gains.
Consensus views on Indra are split, with 11 of 17 analysts rating it “buy.” Berenberg’s estimates point to €5.4 billion in sales, €490 million in EBIT, and more than €300 million in free cash flow for 2025, excluding pending acquisitions of Hispasat and Hisdesat.
“While Indra’s strategy clearly comes with some execution risk, we believe that current valuation is too cheap to be ignored,” the brokerage said.