Q3 23: Strong momentum in the aftermarket

Safran managed strong Q3 growth and delivered solid sales figures, supported by its capacity to increase prices coupled with the strong momentum in the aftermarket. The company nonetheless left its FY23 guidance unchanged to reflect the impact of lower-than-expected LEAP engine sales, an increasing share of LEAP engines in the aftermarket and headwinds from raw material inflation.

H1 23: LEAP OEM delivered better margins than the Interiors segment

Safran delivered good but below consensus H1 figures supported by a strong commercial recovery. Revenues grew by 28% and recurring operating income by 33% but, due to the ongoing weakness in the Interiors business, the group’s margin of 12.8% was a miss compared to 13.4% expected. However, the company raised FY23 guidance, thanks to the weakness in the USD, and announced a €1bn share buy-back programme to be completed by the end of 2025.

Q1 23: great performance but without guidance update

Safran provided a favourable trading update with Q1 revenues at €5.3bn, +29.4% yoy. Growth was mainly fuelled by the Propulsion (+34.9% yoy) and Aircraft Interiors (+37.7% yoy) activities. However, despite the strong performance this quarter, Safran has not upgraded its FY23 guidance, partly because of the increasing share of LEAP contracts on the top line.

Q4 22: Strong FCF generation supported by advance payments

Safran published FY results in line with consensus. Both adj revenue €19,035m (+25% yoy) and recurring operating income €2,408m (+33% yoy) stood 1% above the consensus. On an organic basis, 2022 revenue increased by 15.8%, supported by strong spare parts sales and aftermarket services across all the segments, thanks to the air traffic recovery in the past year. FCF was €2.7bn, exceeding expectations, supported by customer advance payments notably relating to the Rafael and LEAP.

Q3 22: Impressive momentum in the aftermarket

Safran managed strong Q3 growth and delivered solid sales and FCF figures. Its capacity to increase prices coupled with the required additional content in the aftermarket led to an increase to the company’s sales and FCF guidance. On the margins side, we see several headwinds that could impact the business in the coming quarters. But overall, a strong performance.

Q2-22: Guidance upgrade thanks to a positive FX effect

Safran delivered a solid beat and upgraded guidance. However, the beat was mainly linked to a strong FX effect and prepayments associated with the Rafales contracts. In terms of operations, despite the slower than expected deliveries of its engines linked to production delays, the aftermarket activities were stronger than anticipated and offset this headwind. Safran is well positioned to benefit from the air traffic recovery.

Q1 22: Slight beat despite stalling ASK, margin pressure ahead

Safran has proved it can navigate bad weather. Despite a damaged supply chain due to the Ukraine war, China air traffic at its lows and cost increases, Safran has reiterated its FY22 guidance and is confident that 2023 will reach 2019 levels. However, there are some worrying headwinds that could see thinner margins.

Q4 21: strong FCF generation despite dull results

Safran published results which were globally in line with consensus on all metrics. The positive surprise came from its FCF generation, which has been high driven by a positive working capital linked to prepayments of the recent massive Rafales contracts and low capex. Safran would have been well set for growth, if it weren’t for Russia.

Strong long-term fundamentals intact

At its CMD, Safran revealed its technological roadmap up to 2025 as well as its new financial targets up to 2025. Although the sales CAGR growth of 10% is below the market’s expectations and our estimates, we believe that Safran is still well set to surf on the recovery of aviation, with limited short-term catalysts but strong fundamentals.

Q3 21: Increased guidance reinforces our Buy recommendation

Safran published a strong set of Q3 results driven by growth in all its segments. The biggest driver was Aerospace propulsion due to strong sales of LEAP and the aftermarket. As a result, the guidance has been adjusted upwards in terms of sales and FCF.

Q2 21: counts on positive H2 to achieve guidance

Safran has published mediocre results with no surprises. Revenues and profits are in line with consensus in all segments, with a narrow-body ASK still lagging the 2019 levels at 60%. Safran is betting on serious cost management to mitigate its losses.

Q1 21: sharp sales decline

The impressive decline in sales yoy was expected, as the first quarter of 2020 was not impacted by the pandemic. Guidance remains unchanged, in a highly unstable environment.

FY20 met all expectations, but the recovery is not yet on

Safran’s FY 20 result beat estimates. However, the guidance is a clear miss compared to both our estimates and the consensus. The good momentum seen in Q4 20 is currently wiped out by the spread of variants of Coronavirus as well as the easing pace of recovery in China.

Q3 20: Slight rebound over Q2, on track for FY20 guidance

Safran’s third-quarter revenue was in line with market expectations. Despite a still-challenging environment, activity saw a modest rebound in Q3. Thanks to the rapid adaptation of the company to its new environment and the effective implementation of the adaptation plan, FY20 guidance was maintained.

Performing well in a depressed industry

Safran posted H1 20 results above consensus with, notably, a better than expected operational performance and good FCF generation. Management also gave new 2020 targets, broadly in line with the current Street expectations as regards revenues and recurring operating margin, while the statement about positive FCF generation in H2 was reassuring.

Morning Note – 22 April 2024

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Morning Note – 26 March 2024

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