Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on SAFRAN SA. We currently have 7 research reports from 2 professional analysts.
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A merger written in the stars
20 Jan 17
Safran has finally announced its intention to merge with Zodiac Aerospace. A cash tender offer at €29.47 per Zodiac share represents a premium of 24.5% to Wednesday’s closing price. This is a deal that has been on the cards for most of this decade and will create the world’s third-largest aerospace supplier after UTC and GE. Safran announced last year that it wanted to focus on its core business of civil aerospace, and merging with Zodiac is consistent with that. However, there is a risk that integrating such a large acquisition will be a distraction for management from its focus on ramping up output of its existing business.
A small one-off decrease but no shuddering of FY guidance
25 Oct 16
Safran released rather weak Q3 revenues, decreasing to €3.52bn vs €3.67bn a year earlier, representing a 4.1% decrease (-0.8% on a comparable basis). The Propulsion (-2.3% organically) and Defence (-4.5% org.) divisions suffered the most, while Aircraft Equipment saw its revenues increase organically by 3% yoy. The important change of perimeter was due to the spatial launchers no longer being consolidated which represented a €110m revenue in Q3 15.
Cautiousness in the aftermarket?
02 Aug 16
Safran announced strong H1 figures. However, management’s slight reduction in aftermarket growth guidance to the lower end of the 7-9% range certainly impacted the share price negatively despite guidance having been confirmed. Headline numbers: Adjusted revenue was €8.93bn, up 6.5% on an organic basis, driven primarily by growth in Aerospace services and in the Security segment. Adjusted recurring operating income was up 11.8% to €1.3bn, or a group margin of 14.6%, thanks to the growth in high margin Aerospace services and the continuously supportive contribution from OE on CFM56 engines along with the growing contribution from Security. These positive factors were partially negatively offset by the losses of in-production and delivered LEAP engines, higher R&D costs and headwinds in the Helicopter turbine business. Adjusted net income – group share at €862m, translating into a net income growth of 15.7% excluding last year’s exceptional capital gain from the sale of Ingenico shares. FCF generation was significantly positive during the quarter at €566m (€96m in H1 15) thanks to solid control on working capital and lower capitalised R&D as programmes enter into service. The net debt position was €1.01bn at the end of the half and includes the €470m payment to Airbus concerning the creation of Airbus Safran Launchers. An additional €280m payment will be made in H2 so that the total equalising payments will have come to €750m. The deconsolidation will impact revenues to the tune of some €400m and the 50% share will be consolidated at the equity level and is expected to have a slight positive impact on recurring operating income. The H1 16 civil aftermarket was up 8.5% in USD terms driven notably by recent CFM56, GE90 engines and services. Management now expects full-year growth to stand at the lower end of the guided 7-9% range. 2016 guidance has been confirmed with revenues expected to grow by a low single-digit number while adjusted recurring income is expected to grow by c. 5% with the margin rate expected to grow similarly to 2015’s. FCF should represent c.40% of adjusted recurring income.
Securing the future
17 Mar 16
Safran’s ambition in the security market appears to have waned, with the company confirming a review of the division’s operations. While long-term guidance to 2020 appears conservative, it still implies recurring profit growth in excess of 5% pa with expanding margins and growing cash flow. The recent share price retrenchment fails to recognise this adequately
15 Mar 16
Safran’s management has reset expectations during its capital markets day (CMD) by guiding down margin expectations due to the transition from CFM56 engine to LEAP engine production from 2016 through to 2019/20. While this may have surprised the market which reacted to the news by punishing the stock by 6%, the overall presentation showed that from an operational standpoint the key pieces are in place to ensure a smooth ramp-up as well as ensuring that the learning curve effect on unit costs kicks in as rapidly as possible. The impact of the LEAP programme start-up costs means that management finds itself at the very bottom of what the market had expected which should lead to some downward revision in forecasts. The key points from the day: Group margins are flat at c.14% (2016-19) as the dilution from the LEAP OE ramp-up will not be offset by the growth in the aftermarket sales of CFM56. In addition to the positive FX tailwind, there is an improvement in margins in the non-aerospace businesses. Beyond 2020, Safran fully expects the group margins to go above 15%. The Aerospace propulsion margin is expected to stand in the mid to high teens through the transition, meaning that in effect the expected losses are a couple of hundreds of millions superior to what was expected and that, overall, the aftermarket would fail to compensate for the ramp-up. The expected improvement in the aftermarket has by no means been revised downwards with CFM56 engine maintenance still to kick-in fully and therefore offers significant growth potential both in terms of revenues and profits. The upside coming from the other divisions is certainly more aggressive than expected. All divisions are expected to deliver a 100bp progression per year during the transition period, helping to maintain the group margin. The improvements are expected to come from a combination of operational improvement, operational leverage from volume growth and the end of a high investment phase at most of the divisions and in particular Aircraft equipment. While factually disappointing, Safran’s management clearly stated that it was being very (if not overly) prudent, suggesting that the guidance was certainly “beatable” but that as a first CMD from the CEO the incentive was to deliver the guidance (setting targets that can certainly be beaten). During the CMD, management selected effectively to highlight that the LEAP programme had been significantly de-risked with key high supply chain commonality and double sourcing from both legacy suppliers and low cost suppliers at the heart of the process. In addition, Safran has stressed its supply chain by imposing a two-week production ramp-up to the maximum forecast production rate, identifying weaknesses and allowing time to mitigate them well ahead of the effective ramp-up. While margins are set to remain steady during the period, management was not shy when suggesting that cash flow should improve significantly during the period. While conversion of EBIT to cash is expected to remain flat at 40% in 2016, it should improve to 50% and beyond from 2017 onwards. A word on M&A: The divestment of the detection business (Airport scanners) and the review of the Security business (ID, biometrics), which together represent 10% of group sales, was also a surprise announcement. In addition management suggested that it was not against adding to the Aircraft equipment portfolio which has led to speculation about a renewed interest in Zodiac Aerospace. This would be an interesting deal, obviously depending on the price but whether or not the controlling families are willing to sell is an entirely different story altogether. A word on accounting: Safran’s CFO has highlighted that IFRS 15 (implementation expected in 2018), which looks at the accounting of long-term contracts with a key focus on revenue recognition, should have a limited impact overall, with the propulsion business already being accounted conservatively, and that, however, some changes in the Defence business should be expected especially concerning milestone payment revenue recognition.
Very solid Q3 but no silver lining
22 Oct 15
Very strong Q3 15 adjusted revenues €4.14bn, up 15.4% year-on-year (organic basis, growth was 4.6%), driven notably by an increase in civil aftermarket revenue (up 18.5% in US$). The increase reflects growth in Aerospace (Propulsion up +14.2% and +5.7% organically, and Equipment up +15.6%, -0.6% organically), Security (up 28.8%, 17.7% organically) and Defence revenue (up 3.9%, -1.2% organically). On an operational basis, Safran highlighted that it was on track with the important LEAP-A (Neo) and LEAP-B (Max) development with testing on the LEAP-A well underway. The performance is so far in line with expectations and Safran is confident that it will respect the specs 9 months from now. Disappointingly, Safran announced that its Silvercrest Business jet engine (will supply Dassault Falcon 5X and Cessna Citation) was not delivering the required specs and would certainly lead to an impairment for the FY and Safran would incur extra costs to meet the specs. Safran suggested that the company might require an additional 12-18 months.
20 Feb 17
Hayward Tyler Group* (HAYT): Trading update and financial position (CORP) | Petra Diamonds (PDL): Interim results (BUY) | Gemfields* (GEM): Interim results (CORP) | Premaitha Health* (NIPT): Middle East momentum (CORP) | Sound Energy (SOU): Acquisition update and TE-8 well spud (HOLD) | Proactis* (PHD): Interim trading on track (CORP) | 7digital* (7DIG): Automotive contract win (CORP)
21 Feb 17
Lighthouse Group* (LGT): Middle Britain growth (CORP) | Utilitywise* (UTW): Double-digit sales growth (CORP) | Trakm8* (TRAK): Earnings expectations cut again (CORP) | dotDigital* (DOTC): Myriad growth opportunities (CORP) | Artilium* (ARTA): Five-year Telenet deal secured and prepaid (CORP) | Netcall* (NET): Cloud investment pays off (CORP)
N+1 Singer - Small-cap quantitative research - New quality style screen + 11 quality focus stocks
09 Feb 17
We introduce our fourth and final style screen representing “quality”. This screens for stocks with the best combination of high returns on capital/equity, EBIT margins and operating cash-flow conversion rates. These criteria should help us monitor how strong underlying returns translate into share price performance over time and under varying market conditions. The screen selects the “best” 25 stocks from our universe of just over 500 stocks and, as usual, we focus on a shorter list of stocks we cover or otherwise know and believe to be particularly interesting. We provide brief investment summaries on these focus stocks on pages 4 – 9. We will monitor performance and refresh the screen in approximately 3-4 months time.
The Slide Rule
12 Jan 17
What is The Slide Rule? The Slide Rule has been designed to dramatically simplify the identification of the best companies in the UK small/mid-cap sector by making a quantitative assessment of the relative potential of each company. At its core, The Slide Rule aims to identify those companies that create genuine shareholder value through strong returns on capital and solid growth, but also present a value opportunity with the potential tailwind of earnings momentum. Companies are assessed within a Quality, Value, Growth and Momentum (QVGM) framework.
Time to go over weight
24 Feb 17
We believe equity investors are taking an unnecessarily cautious stance on the construction sector. Forward looking indicators (e.g. consumer confidence, construction PMIs and housing starts) point to a stable market and recent sales LFL are particularly encouraging (e.g. Marshalls). Near term margins may suffer temporary distortions as inflationary pressures build. However, history has shown that modest input cost inflation is actually a positive for earnings growth in the sector. Therefore, as we move into 2018, margin trends are likely to surprise on the upside.
N+1 Singer - Morning Song 22-02-2017
22 Feb 17
CORETX (COR LN) Contract wins and new Lifestyle facility | Gooch & Housego (GHH LN) Solid Q1 trading plus earnings enhancing acquisition of StingRay Optics | NCC Group (NCC LN) Further issues in Assurance | PCI-PAL (PCIP LN) Strong H1 underpins positive outlook | UBM (UBM LN) Results | Verona Pharma (VRP LN) Phase IIa RPL554 add-on trial to tiotropium commenced