Airbus — Positive progress

Airbus — Positive progress

Airbus has demonstrated positive progress in Q318 both on a year-on-year and sequential basis. Strong profitability reflected the progress on the A350 programme as the production schedule ramps up. Guidance has been adjusted, reducing the number of expected aircraft deliveries and FY18 FCF performance. Overall, with supportive end-markets, Airbus continues to address its current production challenges. We believe that the improving financial performance from the A320 and A350 ramp-ups underpins growth in group cash and earnings from 2019.

Andy Chambers

Written by

Andy Chambers

Director, Industrials

Airbus

Positive progress

Aerospace & defence

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1 November 2018

Price

€97.71

Market cap

€76bn

US$1.14/€

Share price graph

Share details

Code

AIR

Listing

Euronext

Shares in issue

775.8m

Business description

Airbus is the European manufacturer of large civil passenger jets that competes directly with Boeing of the US. The group also produces and supports helicopters, space equipment, military aircraft and other defence equipment.

Bull

Huge civil aircraft backlog representing over 10 years (at 2017 delivery levels).

Production rates are set to rise from the recent plateau as A320neo transitions to 60 per month by mid-FY19 and A350 moves to rate 10 per month.

Cash conversion should improve as the new product investment phase in Civil wanes.

Bear

Continuing issues in military aircraft, although A400M contractual resolution appears closer.

Although improving, A320neo engine delays mean a heavy H2 skew of the delivery schedule to achieve guidance.

Ongoing SFO and PNF investigations hold the potential for imposition of monetary penalties.

Analysts

Andy Chambers

+44 (0)20 3077 5700

Annabel Hewson

+44 (0)20 3077 5700

Airbus is a client of Edison Investment Research Limited

Airbus has demonstrated positive progress in Q318 both on a year-on-year and sequential basis. Strong profitability reflected the progress on the A350 programme as the production schedule ramps up. Guidance has been adjusted, reducing the number of expected aircraft deliveries and FY18 FCF performance. Overall, with supportive end-markets, Airbus continues to address its current production challenges. We believe that the improving financial performance from the A320 and A350 ramp-ups underpins growth in group cash and earnings from 2019.

Q318 shows strong progress

Q318 revenues rose 20.4% to €15.5bn (Q317 €12.8bn), and up 6.4% on a nine-month year-to-date basis at €40.4bn (9M17: €38.01bn). Adjusted 9M18 EBIT more than doubled to €2.7bn, from €1.2bn in 9M17, driven by visible strength of the A350 programme and the positive impact from delivering more aircraft, with the reducing costs and more favourable price mix. From a cash flow perspective, commercial delays to a few A330ceo and A380 deliveries, which should resolve in Q418, burdened Q318. So have some industrial challenges due to efficiency investments in the A320 final assembly line ramp-up which, together with recently announced engine delays for the A330neo, reduce full-year net cash expectations.

Guidance adjusted

While the market backdrop remains supportive, Airbus has adjusted FY18 guidance to reflect these issues. The company is now looking for total FY deliveries of around 800 civil aircraft (down from around 818 at H118, both including 18 A220s). Production schedules have been adjusted to reflect Rolls-Royce’s outlook on the A330neo ramp-up. On the military side, the A400M is delivering against objectives set in February and, while slower than expected, conclusion of the contract amendment negotiation is progressing, with commercial terms to be agreed. The selection of Guillaume Faury to succeed Tom Enders as CEO after next year’s AGM provides a degree of management continuity. Group guidance for adjusted EBIT remains €5.0bn for FY18 with lower deliveries and dilution from the A220. FCF before M&A and Customer Financing, now including a €0.3bn outflow from the A220 integration, is expected to be c €1bn below the FY17 level of €2.95bn.

Valuation: Rated for growth

It is clear that the company has a lot to do in Q418. However, the clear progress that the company has made year-to-date supports both EPS and cash flow growth in FY19, making a 17.3x FY19e P/E somewhat undemanding.

Consensus estimates

Year
end

Revenue
(€bn)

Adj EBIT
(€bn
)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/16

66.6

3.96

3.31

1.35

29.5

1.4

12/17

59.0

3.19

3.67

1.50

26.7

1.5

12/18e

63.7

5.17

4.35

1.77

22.5

1.8

12/19e

69.6

6.24

5.65

2.17

17.3

2.2

Source: Thomson Reuters

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Airbus and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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