Indra (AO) | Buy | EM&E willing to negotiate the price. FCAS cancelled, but downside limited

Research evidence excerpt

Indra (AO) | Buy | EM&E willing to negotiate the price. FCAS cancelled, but downside limited

he described as "interesting". In our view, this suggests the operation remains alive.

We continue to view the potential acquisition of EM&E as a meaningful catalyst for Indra, not only due to the attractive valuation,

but also because of its potential to accelerate defence exposure and support the re-rating story.

We believe the transaction is strategically compelling, as acquiring a high-margin and fast-growing company like EM&E would

enhance Indra’s position as Spain’s leading integrated defence conglomerate, uniting advanced technology capabilities with land

systems and weapon solutions, while increasing exposure to defence (with EBIT in defence being c. 60% of the combined entity).

If the deal ultimately falls through, we acknowledge that this near-term catalyst would disappear. However, this would not alter

the fundamentals of the investment case: Indra remains Spain's defence champion in a structurally favourable spending

environment. As such, EM&E would essentially accelerate Indra’s ramp-up in terms of defence exposure. However, we expect

Indra to reach a higher defence exposure regardless. Our EUR76 TP does not factor in the acquisition of EM&E.

FCAS uncertainty creates noise, but the impact appears limited

As for FCAS, and the negative share price reaction following reports that the programme in its current form could be cancelled,

visibility remains limited.

While the potential implications remain unclear, the Combat Cloud component (where Indra has a more significant role) appears

likely to continue and could form the basis of a future programme architecture. As such, any negative impact on Indra could be