We Assess the Impact of Supply Chain Pressures on Our European Aerospace Suppliers

In light of supply chain bottlenecks and potential raw material shortages, which have intensified as a result of the war in Ukraine, we reassess our forecasts for wide-moat Safran, wide-moat MTU Aero and narrow-moat Rolls-Royce. After making short-term downward adjustments for sales growth and profitability the fair values of the firms in question do not change significantly. This is due to the long-term nature of their respective sales cycles, with the bulk of the value captured in later years. Safran’s fair value estimate remains unchanged at EUR 150 per share, while MTU Aero’s is lowered to EUR 200 per share from EUR 212, and Rolls-Royce’s fair value estimate is now GBX 105 (ADR: $ 1.40) compared with GBX 115 (ADR: $1.60), previously. We continue to prefer Safran, which trades at a hefty discount to our fair value estimate, while Rolls-Royce and MTU Aero are trading near fair value territory.