Safran: Safran’s engine services remain as profitable as ever, the stock is progressing

(BFM Bourse) – The aeronautical equipment manufacturer delivered solid results for the 2023 financial year as well as prospects that exceeded expectations.

Somewhat overshadowed by the good performance of automobile manufacturers Stellantis and Renault, Safran nevertheless posted a remarkable stock market performance after the publication of its annual results.

The aeronautical equipment manufacturer rose 4.1% at the start of the afternoon, which constitutes the third largest increase in the CAC 40. In the same sector, Airbus is faring less well (-1.2%). . The group led by Olivier Andriès has fully benefited from the resumption of air traffic in 2023.

Remember that Safran is more dependent on the evolution of flight cycles than Airbus, which is exposed to the need to replace or renew aircraft fleets. This Safran coach derives a large part of its margins from its after-sales services (maintenance, repair, overhaul, sales of spare parts), even though the group does not reveal their profitability.

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Resumption of long-haul traffic

His income

reached 23.2 billion euros in 2023, increasing by 23.6% on a comparable basis. Revenue benefited from “Safran’s favorable positioning in the growing short- and medium-haul market,” the company explained.

“The recovery in air traffic continued in 2023, with a gradual improvement in short and medium-haul capacity to 105% (on average) of its 2019 level,” the company continued.

A closely followed indicator, services for civil engines recorded growth of 32.9% in dollars thanks in particular to strong demand for spare parts for CFM56 engines (the best-selling engine in the world via its joint venture with General Electric).

Current operating profit increased by 31.5% on a reported basis and by 27.2% on a comparable basis to 3.17 billion euros. The corresponding margin stood at 13.6% compared to 12.6% a year earlier.

Free cash flow reached 2.945 billion euros for the whole year, exceeding analysts’ forecasts by 5%, which stood at 2.82 billion euros according to Oddo BHF.

Robust outlook

For 2024, Safran expects to generate turnover of 27.4 billion euros, current operating income close to 4 billion euros and free cash flow of around 3 billion euros. These forecasts are based in particular on the assumption of 20% growth in turnover for civil engine services, which would mark further robust progress.

These prospects are higher than the expectations of analysts who expected a turnover of 26.63 billion euros, a current operating profit of 3.9 billion euros and a cash flow of 2.94 billion euros , according to Oddo BHF.

Morgan Stanley also believes that the growth forecast for engine services, higher than the consensus, has enough to boost the stock on the stock market.

Oddo BHF confirms its advice to “outperform”. Certainly Safran trades at 25 times expected profits over twelve months, a premium of 23% compared to its pre-Covid average. But, argues Oddo BHF, this is accompanied by average annual growth of 24% over the period 2022-2025 with cumulative cash generation of 10.8 billion euros. “A significant part of this should be returned to shareholders,” adds the bank.