Last Update 06 Dec 25

SOP: Buy Rating Will Remain Supported By Modest Discount Rate Increase

Analysts have slightly reduced their price target on Sopra Steria Group, trimming it by EUR 5 to reflect a marginally higher discount rate, modestly stronger revenue growth expectations, and a nearly unchanged profit margin and future P/E outlook.

Analyst Commentary

Recent research updates reflect a nuanced view on Sopra Steria Group, with the modest reduction in the price target seen as a fine-tuning of assumptions rather than a shift in the investment thesis. The overall stance remains constructive, but with heightened attention to execution risks and valuation discipline.

Bullish Takeaways

Bullish analysts highlight that the revised price target still implies attractive upside, suggesting that the shares remain undervalued relative to the company’s long term earnings growth potential.
The slight reduction is largely attributed to technical factors, such as a marginally higher discount rate, rather than a deterioration in the company’s operating outlook.
Expectations for modestly stronger revenue growth underpin the positive view that Sopra Steria can continue to gain share in key digital transformation and IT services markets.
Stable margin and P/E assumptions indicate confidence that management can execute on its strategic plan without significant erosion of profitability.

Bearish Takeaways

Bearish analysts view the lower price target as a signal that upside may be more constrained, particularly if market conditions remain volatile and investors demand higher risk premiums.
The higher discount rate reflects concern about macroeconomic uncertainty and potential pressure on client IT budgets, which could slow new project wins or extensions.
While revenue growth expectations have been nudged higher, some remain cautious that competition and pricing pressure could limit the pace at which this flows through to earnings.
The largely unchanged margin and P/E assumptions may be seen as leaving limited room for error in execution, especially if cost inflation or wage pressures accelerate.

What's in the News

Chief Executive Officer Cyril Malargé has informed the Board of his decision to pursue a new opportunity and step down as CEO. This has prompted a formal succession process led by the Nomination, Governance, Ethics and Corporate Responsibility Committee (Key Developments).
The transition period will be managed by a small leadership team organised around the Group’s Chief Operating Officer to ensure operational continuity while a new CEO is selected (Key Developments).
The Board of Directors convened on October 8, 2025, to consider and officially take note of Malargé’s planned departure as part of its scheduled board meeting agenda (Key Developments).

Valuation Changes

Fair Value: unchanged at €201.90 per share, indicating no revision to the intrinsic value estimate.
Discount Rate: risen slightly from 10.05 percent to 10.09 percent, reflecting a marginally higher perceived risk profile.
Revenue Growth: increased modestly from 2.14 percent to 2.18 percent, signalling a small uplift in long term top line expectations.
Net Profit Margin: edged down slightly from 5.82 percent to 5.81 percent, suggesting a near stable but marginally softer profitability outlook.
Future P/E: ticked up marginally from 13.77x to 13.79x, implying a slightly higher valuation multiple on projected earnings.

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

About Sopra Steria Group

Provides consulting, digital, and software development services in France and internationally.What are the underlying business or industry changes driving this perspective?

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 Earnings and Revenue Growth

Sopra Steria Group Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

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 6.1% in 3 years time.
Analysts expect earnings to reach €373.6 million (and earnings per share of €19.0) by about September 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 14.1x on those 2028 earnings, up from 10.5x today. This future PE is lower than the current PE for the GB IT industry at 14.5x.
Analysts expect the number of shares outstanding to decline by 1.28% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 9.58%, as per the Simply Wall St company report.

Sopra Steria Group Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

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

How have all the factors above been brought together to estimate a fair value?

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 €373.6 million, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 9.6%.
Given the current share price of €154.0, the analyst price target of €222.0 is 30.6% 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.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Analysts Lower Sopra Steria Price Target as CEO Steps Down and Forecasts Adjusted