European procurement is structural, not cyclical

Multi-year procurement commitments have replaced annual appropriations across four major buyers. The order books that follow do not behave like a cycle.

Priya Raman@priya_raman

An annually appropriated order book carries re-authorisation risk every year, so it is correctly valued as cyclical. A multi-year framework removes that risk for its duration, which lengthens revenue duration and should lower the discount rate applied. The risk is political reversal, which is real but slower than it looks: frameworks of this type generally survive a single change of government because the contracts are already signed. The industrial constraint is conversion rather than demand. Capacity for munitions and long-lead components was sized for the previous regime and is being expanded now, which puts the revenue two to three years out rather than next year.

Discussion · 4

Pauline VidalAUG 13

Respectfully, I think this overstates it. The capital intensity point is the one I keep coming back to. What is the base rate on this kind of setup working?

Omri ShakedAUG 13

I think the setup matters more than the thesis here. The exclusivity window is the part the market keeps mispricing. What would you need to see to add rather than hold?

Sam WhitfieldAUG 13

Useful framing. The depreciation schedule really is the whole disagreement. Is there a cleaner way to express this than the equity?

Yael BrennerAUG 12

Agree with the direction, less with the magnitude. The utilisation assumption is where I disagree. Does the same logic apply to the closest comparable?

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