Citi

The Point for Europe Monday, 03 August 2026

Top Call | Company | Industry | Strategy & Economics | Fixed Income & FX | Key Rating and Target Price Changes

Top Call Must Read European Equity Strategy - European Reporting Season: Upgrades, Delivery and Dispersion Global Economic Outlook & Strategy - While European 2Q26 earnings have largely met expectations, this follows an Renewed Uncertainties—But unusually powerful pre-reporting upgrade cycle that had already raised the bar for Continued Resilience positive surprises. More importantly, the market response has been highly discerning: Companies delivering earnings have been rewarded, while misses have faced significant penalties. Encouragingly, earnings momentum remains positive and increasingly broad-based, with both 2Q and 3Q growth expectations moving higher and a wider set of sectors contributing to the recovery. Together with the strong breadth of recent earnings upgrades, which has historically been associated with further EPS revisions and stronger equity returns, this reinforces our constructive view on European equities. Beata M Manthey, Ph.D. | Nikhil N Jadhav, CFA | David Groman

Hensoldt (HAGG.DE) - Nice beat, especially at EBIT adj; FY guidance confirmed. 2x BtB bodes well for future growth Q2 results: Orders €1,329m (8-9% ahead of consensuses), BtB ~2x, Sales €671m (3-4% ahead), EBITDA €93m (2% ahead of company compiled consensus, 2% behind Visible Alpha), EBIT adj €70m (10% ahead VA) and FCF outflow ( €41m), considerably less than expectations, helped by customer advances with the orders - details see Figure 1 below. FY guidance confirmed (BtB 1.5-2x, sales €2,750m, 18.5-19% EBITDA and 50% cash conversion of EBITDA to FCF ). Analyst call at 3pm CET, 2pm UK. Charles J Armitage

Melrose (MRON.L) - H1 looks fine, but buy-back paused until Garden Grove impact clarified H1 results look fine (Sales 3% ahead of Visible Alpha consensus, EBIT adj 1% ahead - see Figure 1 below). FCF inflow of £13m (vs (£54m) last year, helped by £7m tailwind from Garden Grove inventory unwind more than offsetting the cash costs. However, the Garden Grove incident means the buy-back is paused until the financial impact has been clarified, including ongoing regulatory and legal processes, local compensation and insurance. So far £13m extra costs have been incurred, plus £9m lost profits, with a further £25-30m costs expected in H2 and £6m per month lower profits until full production is resumed. Full year guidance, _ excluding Garden Grove impact, has been confirmed. _

See Appendix A-1 for Analyst Certification, Important Disclosures and Research Analyst Affiliations.

BT Group PLC (BT.L) - UK fixed-line tough, while pension presents long-term downside This quarter saw BT, Virgin Media O2 and TalkTalk all report fixed ARPU decline YoY, with growth rates deteriorating QoQ, reminding of the challenging UK fixed environment. We update our BT forecasts today to now treat International as discontinued until the joint venture with Verizon completes in 2027, but the reduction to our TP (from 175p to 165p) is more driven by BT’s pension, reflecting long-term downside risk from The Pension’s Regulator’s Low Dependency Funding Basis (LDFB). In this note, we also summarise key takeaways from BT’s regulatory financial statements that were published on Friday. We keep our Sell rating. Carl Murdock-Smith, CFA

Vodafone Group PLC (VOD.L) - LTIP targets consistent with double-digit adj. FCF growth ambitions Vodafone has published its adj. FCF targets for the long-term incentive plan (LTIP; also called Global Long-Term Incentive or GLTI) for the three years to 2028/29. The cumulative adj. FCF threshold, at which 20% of maximum is paid out, is set at €8.7bn, while the maximum payout is set at €10.3bn. Company-compiled consensus stands at €9,431m (€2,780m in 2026/27, €3,112m in 2027/28, €3,539m in 2028/29) while Visible Alpha (VA) is at €9,587m (€2,866m, €3,193m and €3,528m, respectively). Looking at historic achievement, in the LTIP that ran the three years to 2025/26, Vodafone achieved a 100% payout on the adj. FCF measure, the LTIP to 2024/25 achieved 54.2%, and the LTIP to 2023/24 achieved 65.3%. In this…