Urban Mobility And Cybersecurity Upgrades Will Redefine Air Traffic Management

Key Takeaways

• Strong order backlog, accelerating software-driven margins, and robust demand for resilient infrastructure position Frequentis for compounding revenue and profit growth over multiple years.
  
• First-mover advantage in military drone and counter-drone markets, plus expansion in cloud/SaaS upgrades, unlocks significant new growth and increases recurring revenue.
  
• Intensifying technological disruption, reliance on public clients, and mounting cost pressures threaten Frequentis's future profitability, revenue stability, and competitive relevance.

Catalysts

Develops and markets communication and information systems for safety-critical control centers in Europe, North America, Asia, Australia, South America, Middle East, Africa, and worldwide.

• While analyst consensus sees the strong order backlog and pipeline driving visibility through 2025, the current book-to-bill ratio above two and more than half of the €764 million backlog stretching into 2026 implies multi-year, compounding revenue and margin acceleration as projects hit higher-profit rollout phases earlier-and these figures could underestimate the potential if capacity and execution continue to improve.
  
• Although analysts broadly agree on ongoing software mix and margin improvement, Frequentis's commitment to high R&D and acceleration of disruptive tech (e.g., Release 10 for virtualized communications, with Canada as a major launching customer and possible global rollouts) positions the company to structurally shift the margin profile faster than expected and achieve double-digit EBIT margins on a group level well before consensus timelines.
  
• Surging demand for cyber-secure, resilient critical infrastructure-amplified by recent, high-profile system outages and heightened media attention globally-is likely to expedite modernization and replacement cycles, creating a wave of urgent upgrade contracts that heavily favor Frequentis's advanced, future-proof platforms and boosting both order intake and pricing power.
  
• The newly emerging military drone and counter-drone market, now being driven by defense sector evolution and the proven need for advanced friend-or-foe identification, represents an underappreciated multi-billion euro opportunity in which Frequentis is a first mover in both civil and military domains-unlocking a significant incremental growth engine and raising the ceiling for long-term revenue.
  
• Expansion of installed base business and robust installed system upgrade demand, particularly as more countries implement cloud/SaaS solutions and shift to recurring service models, will structurally increase recurring revenue and gross margins, creating higher earnings visibility and a step change in free cash flow generation.

Frequentis Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Frequentis compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Frequentis's revenue will grow by 16.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.6% today to 5.9% in 3 years time.
• The bullish analysts expect earnings to reach €44.8 million (and earnings per share of €3.38) by about August 2028, up from €22.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 24.2x on those 2028 earnings, down from 35.6x today. This future PE is lower than the current PE for the DE Aerospace & Defense industry at 93.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.01%, as per the Simply Wall St company report.

Frequentis Future Earnings Per Share Growth

Risks

• The company's strong reliance on public sector clients exposes it to slow and unpredictable procurement cycles, as well as potential government budget cuts or fiscal tightening, which can constrain future revenue growth and dampen earnings visibility.
  
• Ongoing investments in R&D, without capitalization of these expenses, and necessary ongoing expenditure to meet accelerating cybersecurity and regulatory demands, put structural pressure on net margins and may limit future profitability improvements.
  
• The growing adoption of artificial intelligence and autonomous systems in air traffic, rail, and maritime sectors may erode the long-term relevance of Frequentis's human-centric control room offerings, ultimately undermining its future revenues as industry standards shift.
  
• The company's limited scale relative to global competitors, and a high proportion of legacy system contracts, make it vulnerable to rising maintenance costs and disruptive, cloud-native technology entrants, which threaten earnings stability and could squeeze long-term net margins.
  
• Industry consolidation and increased market entry from software-centric and tech-native companies may result in aggressive pricing, customer churn, or Frequentis becoming an acquisition target, eroding its market share, bargaining power, and long-term revenue potential.

Valuation

• The assumed bullish price target for Frequentis is €70.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Frequentis's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €70.0, and the most bearish reporting a price target of just €43.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €763.0 million, earnings will come to €44.8 million, and it would be trading on a PE ratio of 24.2x, assuming you use a discount rate of 6.0%.
• Given the current share price of €59.0, the bullish analyst price target of €70.0 is 15.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.