European Cybersecurity And Digital Transformation Will Fuel Resilience

Key Takeaways

• Expansion in defense, cybersecurity, and AI-powered services is boosting high-margin revenue streams and positioning the company for resilient, long-term earnings growth.
  
• Operational improvements and strategic M&A in key sectors are expected to enhance profitability, drive recurring revenue, and improve cash flow over the medium term.
  
• Structural revenue stagnation, margin pressures from rising costs, weak cash generation, sector overexposure, and disruptive technology trends threaten future stability and profitability.

Catalysts

Provides consulting, digital, and software development services in France and internationally.

• Increased investment in European defense, security, and sovereignty-amplified by geopolitical tensions and digital threats-is driving demand for Sopra Steria's cybersecurity, mission-critical systems, and sovereign cloud solutions. This is already evidenced by new contracts and ramp-ups with major government and defense clients, supporting stronger, higher-margin revenue streams and improved long-term earnings.
  
• Acceleration of digital transformation initiatives in both the public sector (e.g., NHS, SNCF, Swiss Railways) and regulated verticals (e.g., financial services, aerospace), combined with Sopra Steria's established presence and multi-country frameworks, positions the company for resilient project inflows, higher contract renewal rates, and consistent revenue growth into 2026 and beyond.
  
• The rapid scaling and integration of AI-powered digital services-evidenced by client projects across finance, logistics, and automotive-coupled with a mature, in-house AI adoption strategy, supports Sopra Steria's transition to higher-value, higher-margin offerings, which is anticipated to enhance both margins and long-term profitability.
  
• Successful implementation and cross-selling of recent large contracts (such as the NS&I in the UK, major French financial institutions, and multi-year aerospace frameworks with Airbus) are expected to drive recurring revenue growth and margin expansion in the coming quarters, especially as more of these contracts ramp up in late 2025 and 2026.
  
• Ongoing progress in operating model transformation, working capital improvement (DSO reduction), and strategic M&A in high-value verticals (defense, financial services, aerospace) should enhance operational leverage, boost free cash flow conversion, and lift net margins over the medium term.

Sopra Steria Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sopra Steria Group's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 5.9% in 3 years time.
• Analysts expect earnings to reach €361.9 million (and earnings per share of €19.1) by about July 2028, up from €282.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, up from 13.0x today. This future PE is lower than the current PE for the GB IT industry at 14.2x.
• Analysts expect the number of shares outstanding to decline by 3.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.06%, as per the Simply Wall St company report.

Sopra Steria Group Future Earnings Per Share Growth

Risks

• Persistent negative organic revenue growth in key markets (France, UK, and Europe all reported contractions in H1 2025, with only a small solutions segment showing growth) highlights structural challenges and exposes the company to potential long-term stagnation or decline in overall revenue.
  
• Rising employee costs, high attrition rates (16.1%), and increased social charges in both major markets are compressing margins, and management notes that improvements will depend on savings plans and cost discipline, indicating ongoing difficulty in sustainably improving net margins.
  
• Delays in reducing Days Sales Outstanding (DSO) and negative free cash flow (-€145.9 million in H1 2025) reflect challenges in working capital management, signaling risk to cash generation and potentially weakening the company's ability to invest, acquire, or weather downturns, ultimately affecting earnings.
  
• Overreliance on public sector, defense, and financial services (68% of revenue concentrated in three verticals) exposes Sopra Steria to sector-specific budget cuts, political volatility, and changing government procurement, increasing the risk of revenue volatility and limiting diversification opportunities.
  
• Management acknowledges that broader market trends such as AI adoption and cloud-based standardization may, in the long term, cannibalize traditional IT services and systems integration (the company's core), creating structural headwinds for revenue growth and placing downward pressure on blended profit margins.

Valuation

• The analysts have a consensus price target of €222.0 for Sopra Steria Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €262.0, and the most bearish reporting a price target of just €168.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €6.1 billion, earnings will come to €361.9 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of €190.3, the analyst price target of €222.0 is 14.3% 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.