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Research Tree provides access to ongoing research coverage, media content and regulatory news on SAFRAN SA. We currently have 6 research reports from 2 professional analysts.
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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.
Guidance upgraded following solid aftermarket performance
30 Jul 15
Adjusted revenue stood at €8.4bn in H1 15, up 16.6% (organic growth of 5% and positive currency impact of 10.8 percentage points) including a significant positive currency impact mainly due to the considerable strengthening of the USD. The average USD/EUR spot rate in H1 15 was 1.12, compared with 1.37 over H1 14. Adjusted recurring operating income came in at €1.17bn (13.9% margin), up 22.5% from H1 14. Safran posted an adjusted net income of €1.16bn or an EPS of €2.80 including a capital gain of €419m (€1.00 per share) from the sale of Ingenico Group's shares. Net income in the same period a year ago was €616m (€1.48 per share). Consolidated (non-adjusted) net income came in at €-193m, or €-0.46 per share including a non-cash charge of €2.12bn, resulting from adverse change in the fair value of currency derivatives used to hedge future cash flows. The net debt position stood at €1.5bn at the end of H1 15, with free cash flow generation of €96m during the half. Full-year 2015 guidance has been revised upwards on the basis of strong civil aftermarket activity and Safran now expects: Adjusted revenue still to increase by a high single-digit percentage at an estimated average spot rate of USD1.20 to the euro. If the average spot rate of USD1.12 to the euro were to remain throughout 2015, revenue would consequently grow by a low double-digit percentage. Adjusted recurring operating income should increase by a mid-teen percentage (previously low double-digit) at a hedged rate of USD1.25 to the euro. Like previously, free cash flow should represent 35% to 45% of adjusted recurring operating income, subject to the usual uncertainties on the amount of advance payments and the pattern of payments by state clients in the second half. Looking at the various businesses: Propulsion saw revenues increase 19.2% to c.€4.5bn (9% organically) boosted by CFM56 and GE90 overhauls and a solid contribution from the helicopter business. Operating income increased 29.8% to €944m as the margin improved from 19.3% in H1 14 to 21% in H1 15 boosted by the high level of the aftermarket. Aircraft Equipment was particularly boosted by FX movements since OE sales fell somewhat as B787 sales plateaued and the decreasing rates on the A330 and lower A380 deliveries were only partially compensated by the increase in A350 sales (+13%, -1.2% organic). Carbon breaks and landing gear also made a solid contribution. Profitability was impacted as a result of these OE headwinds with the margin in H1 15 falling by 1 percentage point to 8.2% from 9.2% in H1 14. Defence sales were down a bit on an organic basis and should be stable on a yearly basis (+5.5%, -1.7% organic). The operating income margin was down significantly (2.4% vs. 7.4%) in H1 15 as contracts came to an end and the segment booked higher R&D charges. A catch up is expected in the second half. Finally, Security revenues grew +22.6% to €885m (8% organically), again boosted by the favourable currency environment but also the solid momentum in the Identification & Security business while the Detection business is skewed towards H1 15. Operating profit grew slightly by 3.1% to €66m as the group suffered from the slippages in deliveries in detection.
08 Dec 16
Elderstreet stake acquired 02 GENERAL NEWS Globalworth premium In this issue Venture capital firm Draper Esprit has taken a 30.8% stake in venture capital trust manager Elderstreet. Both investment managers focus on the technology sector and they will be able to co-invest. Elderstreet has investments in a number of AIM-quoted companies through its VCTs. The purchase was funded by an issue of Draper Esprit shares worth just over £250,000. Simon Cook, the chief executive of Draper Esprit, is a former partner at Elderstreet so he knows the business and the people who run it, although he did leave more than 14 years ago. Cook has previously acquired portfolios from 3i and Cazenove, two other firms where he has worked. Draper Esprit has an option to acquire the remaining shares in Elderstreet, which has more than £25m under management. Adding Elderstreet to the group enables Draper Esprit to offer investors a range of EIS funds, VCTs and an ISA qualifying listed evergreen patient capital fund. The enlarged group has venture capital assets under management of more than £350m. At the end of September 2016, Draper Esprit had a net asset value of 352p a share, which is similar to the current share price. The June 2016 flotation price was 300p a share. Draper Esprit is quoted on Ireland’s Enterprise Securities Market as well as AIM.
Focused on the long term
08 Dec 16
These are rare events but it is nice to see a management use its public listing advantageously to trade short-term dilution in EPS for the optionality of asymmetric upside in the long term. With over £10m already in the balance sheet, ABD has successfully raised £5.4m gross in a placing and expects to raise another £1m from an offer. We were not surprised to learn that the placing was over 3.5x oversubscribed. How many listed UK companies are positioned to take advantage of the digital revolution in the automotive industry? The additional investment in new people, facilities, products & services should be dilutive to FY2017-18 EPS but this is small price to pay to establish the leading supplier of integrated test, measurement and simulation solutions to the autonomous vehicle industry. Our forecasts assume that growth will accelerate from FY2019. We raise our target price to 575p based on 15x FY2019 EPS, equivalent to Ricardo, the only other UK stock which has embraced the optionalities offered by the technological changes in the automotive industry.
07 Dec 16
Severfield’s (SFR’s) H117 results were well ahead of the previous year; margin performance and order book development cause us to raise our FY17 profit expectations. This combination has also proved to be a catalyst for share price outperformance following the results. Revenue growth and further margin development towards management’s stated aim of doubling FY16 PBT by 2020 can sustain further progress.
Exceptional trading continues
08 Nov 16
Keywords has announced that the strong trading in localisation and audio services has continued into H216. In particular, the Synthesis business acquired in April continues to benefit from exceptionally strong trading. Full-year results are now expected to be materially ahead of consensus and we upgrade our FY16e EPS by 13%. Erring on the side of caution, we have not changed our FY17 estimates significantly. Nevertheless, we believe the company does have a platform to sustain double-digit earnings growth, and hence medium-/long-term prospects for further share appreciation remain good.
N+1 Singer - Waterman Group - Encouraging AGM statement in line with expectations
09 Dec 16
This morning’s AGM Statement confirms that trading in the first four months of the year to 31st October was in line with expectations. Revenue was slightly above the prior year period and cash collection has remained strong. The Group has reiterated its commitment to maintaining a progressive dividend policy. The statement is encouraging and we therefore leave our forecasts unchanged. We note the attractions of a 5% dividend yield and consider the shares inexpensive at 4.5x FY’17 EV/EBITDA.