Morningstar | Increasing Order Intake for Dassault’s Falcon Business Jet in First Half, but Shares Overvalued. See Updated Analyst Note from 20 Jul 2018
We raise Dassault Aviation’s fair value estimates to EUR 1,430 from EUR 1,370 per share, resulting from modest increases in revenue and margin assumptions and an adjustment for the time value of money. Narrow-moat Dassault reported mixed first-half 2018 results with reported sales of EUR 1.7 billion, down 17% on a reported basis year over year. These results were below our expectations but coincided with increasing margins (60 basis points of operating margin expansion). We are happy with the modest recovery in business-jet order intake, which increased in the first half of 2018 to 18 Falcon jets, versus 14 in 2017, and expect the market to bounce back significantly by year-end 2018, supporting firm returns. Despite our fair value estimate increase, we believe Dassault's shares are slightly overvalued following recent share price movements.Owing to its leading positions in military jets, the firm should benefit from an improved outlook in mature defence markets and emerging-market sales opportunities. Dassault is the leading manufacturer of the Rafale fighter jet, with 60% of the equipment value on the aircraft (other industrial participants include Thales and Safran), and we expect annual Rafale deliveries to increase to 15 jets in 2020 from 9 in 2017. In the first half, Dassault signed an agreement with the Qatar armed forces for the additional sale of 12 Rafale fighter jets, raising the number of Rafale aircraft operated by the Qatar Emiri Air Force to 36, with the first deliveries expected in 2018. The next potential large contract win could be in India, as the country put out a request for information for 167 combat aircraft for its air force and navy.
In February, the firm launched the Falcon 6x with roughly the same specifications as the cancelled 5x programme, powered by Pratt & Whitney PW812 engines. In the first half of 2018, it secured the first 6x order, and the first deliveries of this high-end business jet are expected in 2022.
Dassault Aviation is a player in the civil and military aviation industry. Co. designs, manufactures and sells combat aircraft under the names Rafale, Mirage 2000, nEUROn and executive jets under the name Falcon (Falcon 7X, Falcon 900LX, Falcon 2000LX) and business jets. Co. produces combat aircraft. Rafale is a fighter aircraft with a "delta-canard" configuration. Mirage 2000 is a combat aircraft operated in environments ranging from deserts to tropical forests. nEUROn is an unmanned combat aircraft vehicle demonstrator. Falcon is used for passenger transportation by entrepreneurs, executives of companies and governments. Co. also offers maintenance services, follow up and repair services.
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