Updated Thoughts and Expectations for Q2 Results

Research evidence excerpt

Updated Thoughts and Expectations for Q2 Results

IdeaMWe See Upside - Higher Italian Defence Spending In Prospect? Italian newspaper

Repubblica reported over the weekend that Italy is considering raising defence

spending by ~€17bn over two years, that would allow Italy to spend 3.35% of GDP in

2028, up from a plan to reach 2.8% currently. While we see risks to this being

achieved (see more below from our Italian economist Chiara Zangarelli), it could

offer material upside to medium term forecasts given (i) Italy accounts for 23% of

group revenues and 20% of the core Defence Electronics segment in FY25; and (ii)

as the national champion, Leonardo typically captures a high share of defence

spending outlays (~35% capture rate of procurement spend assumed during the

2025 Industrial Plan Update).

Economics View | Limited fiscal space calls for caution: Italian defence spending

has been gradually on the rise in recent years. The government has planned an

increase in defence spending from an estimated 2% in 2025 to 2.8% in 2026. A large

part of this increase in spending, however, is due to broadening the definition of

eligible expenditure rather than an actual increase in provisioning. The government

has so far been very conservative in allocating actual new resources to defence

spending. Since last year, the government has had to carefully choose how to spend

resources while keeping fiscal balances in check, at a time in which a slowdown in

GDP growth has hindered the fiscal consolidation process. To further complicate the

picture, an affordability crisis following the Iran conflict has forced the government

to redirect resources into shielding households and consumers from higher energy

prices. Going forward, we think weak growth will keep fiscal space limited, while