Morningstar | Safran Coverage Change; Slight Fair Value Estimate Increase, Wide Moat and Stable Moat Rating
After taking a fresh look at Safran, an aircraft equipment manufacturer and  Tier 1 engine supplier, we are maintaining our wide moat and a stable trend rating while increasing our fair value estimate to EUR 113 from EUR 110. Our new fair value estimate implies 2019 adjusted P/E and EBITDA multiples of 21 times and 12 times, respectively. The shares do not offer upside at current levels, trading 10% above our fair value estimate.In our view, engine manufacturers are competitively well-positioned players in the complex aerospace supply chain landscape. The potential risk of airframers to develop additional aircraft manufacturing activities in-house is low at the engine level. Engines are one of the most complex components on board, requiring technical knowledge and engineering capabilities difficult to replicate by non-incumbents. Moreover, engine programs life spans for decades, securing spare parts demand for the longer term. Engine components are protected from third-party replications through intellectual property and engineering complexity but, more importantly, by certification requirements since their critical nature increases regulators' scrutiny.
Our investment thesis is based on favorable trends for air transport demand, as IATA predicts passengers’ numbers could double by 2037. New markets (e.g. new routes and destinations), especially in the Asia-Pacific regions, are not the only driver, since airlines purchases are incentivized by new engines promising higher fuel efficiency and lower emissions. The GE-Safran JV and P&W partnership with MTU has already successfully introduced the latest generation of engines delivering more economical and environmentally friendly powering options for aircraft. We forecast Safran’s 300-basis-point margin expansion by the end of 2022, coinciding with LEAP program breakeven point. We account for the favorable mix in the propulsion segment and cost reductions in the other three business divisions.
Safran designs, develops and manufactures high technology electronics through three businesses: Aerospace, Defense and Security. Aerospace includes Aerospace Propulsion (propulsion systems for commercial aircraft, military transport, training and combat aircraft, rocket engines, civil and military helicopters) and Aircraft Equipment (mechanical, hydromechanical and electromechanical equipment); Defense (optronic, avionic and electronic systems); and Security (biometric technologies for fingerprint, iris and face recognition, identity management products, access management and transaction security, including tomographic systems for detection of dangerous or illicit substances in baggage).
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.