(BFM Bourse) – The German bank lowered its advice on the aeronautics and defense group to “sell”, seeing unfavorable impacts on the group’s margins.
Airbus has long been synonymous with consensus value, recommended for purchase by almost all analysts. But the tide seems to be turning a bit.
Several design offices have recently decided to lower their recommendations to “hold” on the value, preferring to wait until the logistical disruptions on the aircraft manufacturer’s production improve or clear up.
Others no longer refrain from advising the title for sale. If necessary this Tuesday, with the German bank Berenberg which lowered its recommendation to “hold” to “sell” on the title as well as its target price to 100 euros against 120 euros previously.
Protection that is not foolproof
In his note, Berenberg worries about the impact of inflation on the group’s accounts. As the German bank explains, in its aircraft order contracts, Airbus benefits from “escalation clauses” to protect itself from price and cost increases. Berenberg also agrees that the group has so far succeeded very well in passing on the increase in its costs to its customers thanks to these clauses and that, given the real absence of the impact of inflation on the results of the company in recent years, investors have been able to appreciate the resistance of the aircraft manufacturer’s margins.
However, the German bank explains that these “escalation clauses” include “in most cases” an annual increase ceiling, with probably a lower ceiling for the most important customers. The longer the duration of inflation above this ceiling in the interval between order and delivery, the more negative the impact for Airbus.
“Given that inflation has been well above the average cap for the past two years, a greater proportion of Airbuses delivered in 2023 and 2024 will have experienced a greater proportion of time between order and delivery above the cap agreed by compared to 2022″, anticipates the bank which consequently sees a risk for the margins of the company. Berenberg explains that its forecasts for adjusted operating income are lower than that of the consensus of analysts by 9% to 15% over the years 2023 to 2025.
To dispel any doubt, the research department specifies that the company will remain very profitable, well above its long-term average. But the bank believes it will be hard pressed to exceed or even meet consensus expectations for its profitability at this time.
UBS has concerns about demand
Berenberg’s delivery forecast is also cautious, with the German bank counting on 725 aircraft in 2023, more or less the figure that Airbus was initially aiming for in 2022 (720), before reducing and then abandoning this objective to finally deliver 661. This number of planes would then increase to 819 in 2024 then 921 in 2025, according to projections by the design office.
On the Paris Stock Exchange, Airbus is losing altitude without completely dropping out, following the lowering of the bank’s recommendation. The group lost 2.2% around 3:30 p.m., posting the third largest drop in the CAC 40, which for its part was stable (+0.09%).
To be seen if Berenberg’s warning will be verified when Airbus results are published on February 16, an event during which the aeronautical group will deliver its objectives for 2023.
Last week, UBS also lowered its advice to sell the aircraft manufacturer, two notches, from “buy” to “sell”. The Swiss bank came to bring a contrasting point of view on the demand for planes – one of the strong points of Airbus – judging it overestimated by the consensus, in particular on single-aisle aircraft. Thus, if Airbus intends to reach a monthly production rate of 75 A320 family aircraft by the middle of the decade, the Swiss bank is only retaining a rate of 67.5 aircraft per month in 2026, considering the demand insufficient to achieve the company’s objective.
Julien Marion – ©2023 BFM Bourse
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