Aeronautics: Airbus and Safran raise their targets, thanks to the dollar

( — Besides Danone, Airbus (+2.6%) and Saffron (+2.5%) are also gaining ground on the CAC40 after the publication of their quarterly results. The aerospace giant raised its free cash flow forecast for 2022 (from 3.5 billion to 4.5 billion euros) due to the strength of the dollar and reaffirmed its delivery and production targets, while delaying few months into service of its new single-aisle, the A321XLR. The aircraft manufacturer, which reiterated its target of 700 deliveries of commercial aircraft for the year, posted an adjusted Ebit up 26% to 836 million euros (920.5 ME consensus) in the third quarter, for revenues up 27% to 13.31 billion euros (13.18 billion euros expected).

Airbus will need to ship an average of 88 planes per month by the end of 2022 to meet its guidance, a figure that appears high although production generally ramps up in the last months of the year. Deliveries reached 437 units in the first nine months of the year.

“We would prefer to have a more linear year in terms of deliveries”, commented Guillaume Faury. “It’s a challenge, but we think it’s achievable.” The Airbus boss also admitted that the supply chain “remains fragile due to the cumulative impact of the Covid-19 pandemic, the war in Ukraine, the energy crisis and the tensions weighing on the market of employment… We will have to wait at least until mid-2023 for the situation to normalize”.

Analysts remain positive

The stock’s strong outperformance since the CMD (+10.3% vs. Stoxx 600) may lead one to believe that this publication was widely played, but Oddo BHF believes that the strength of the FCF generation will more than compensate for the ‘miss’ in EBIT level, especially since Q3 is the weakest quarter in terms of volume (which limits the importance of this ‘failure’). The broker reiterates its ‘outperformance’ opinion and its target of 132 euros. The consensus now appears to be largely adjusted in the short and medium term, which opens the way to a dynamic of upward revisions, adds the analyst.

Stifel points out that there are still 38% of deliveries for the year to be made in the fourth quarter, but this is nothing new, and Airbus has reached the required level of 263 in each of the last three months of 2017. ,2018 and 2019. The broker continues to expect the recovery of air traffic, the desire of airlines to decarbonize their fleets and the popularity of the A320neo to generate strong orders, higher production rates and a profit growth. It thus reiterates its ‘buy’ recommendation and its target of 135 euros.

The strength of the dollar also boosts Safran’s results

Like Airbus, Safran benefits from the strength of the greenback. This will also enable it to raise its annual guidance for turnover and free cash flow. The engine and equipment manufacturer, which anticipated a turnover of between 18.2 and 18.4 billion euros in 2022, now expects it to be around 19 billion euros. It is also counting on a generation of free cash flow of more than 2.4 billion euros, against 2.4 billion euros previously. However, he warned that the increase in his hedge portfolio would have a dilutive effect on the operating margin. In the third quarter, Safran saw its turnover increase by 29.9% (+17.9% in organic terms) to 4.85 billion euros, thanks in particular to the Propulsion and Aircraft Interiors activities. A level well above analysts’ expectations.

“Strong commercial momentum continues amid continued supply chain disruption and rising inflation which we are managing with increased focus on pricing and continued focus on operational performance,” the group said. .

Berenberg (‘buy’) says sales are “comfortably ahead” of estimates, driven by better-than-expected civilian secondary market growth. Overall, this quarter will see upgrades of around +5% from consensus. Oddo BHF reiterates its ‘outperformance’ opinion after this ‘solid’ quarter. In its universe, the broker considers that Safran offers the strongest pricing power thanks to its significant exposure to T&M contracts. The stock offers an average annual growth rate of earnings per share of 23.6% over the period 2022-2025 and cumulative net FCF of 10.6 billion euros, a large part of which should be returned to shareholders.

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