Morningstar | Leonardo Posts Strong 2018 Full-Year Results
No-moat Leonardo delivered strong full-year results, with revenue of EUR 12.4 million beating consensus and management guidance. The company managed to re-dress its profitability in the past quarter and delivered a full-year EBITA margin at 9.2% in line with full-year 2017. The shares rallied as the market was less optimistic of the firm's ability to stabilise the margin, given the first three quarters of 2018 saw margin contractions. We are maintaining our fair value estimate of EUR 12.Key revenue drivers were the main segments, helicopters and electronics, and defence and security systems. Helicopters delivered 11% growth on the back of higher production volumes and deliveries. Aeronautics was weaker than the other two segments, reporting a 6% decline caused by delays in order finalisation in programs such as M346 and C27J and lower levels in other EFA domestic. On EBITA nominal terms, Leonardo achieved the higher range of management guidance and beat consensus expectations. Profitability of 9.2% EBITA margin was maintained in line with last year, with positive contributions from higher volumes and a sharp fourth-quarter profit improvement in the helicopters division and good profitability in the aircraft division. Despite higher sales, the electronics, and the defence and security systems divisions' profitability lagged because of tendering costs in the U.S. and lower-margin development projects in the DRS space.
Other positive news came from the order backlog, a high of EUR 36 billion, with new orders contributing. The helicopters division doubled its order intake year on year, due to contracts such as NH90, the U.S. Air Force MH-139 contract win and new orders from Italian Guardia di Finanza. Defence electronics new order intake was up 11% during 2017, with demand for airborne and space systems (EFA Qatar) and new equipment for NATO's electronic warfare training. Aeronautics recorded new orders of EUR 3 billion, with two thirds in the aircraft division.
Leonardo is the holding company for The Finmeccanica Group, and is responsible for guiding and controlling industrial and strategic operations, coordinates its subsidiaries. The Finmeccanica Group operates in the Aerospace and Defence sector, which includes the Helicopters, Defence and Security Electronics, Aeronautics, Space and Defence Systems segments; and in the Transportation sector, which also includes Fata S.p.a., in addition to the companies operating in the transportation sector.
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