Analyst Note| Joachim Kotze |
Wide-moat Safran reported an organic sales decline of 34.6% for the first quarter of 2021, which is broadly in line with management’s expectations. Guidance for 2021, communicated at the 2020 annual results in February, is maintained despite the slower-than-expected recovery in air traffic. As a reminder, revenue is expected to be slightly lower in 2021 compared with 2020, on the back of lower original equipment sales slightly offset by higher civil aftermarket activity, while the group EBIT margin is expected to increase by 1%, benefiting from a positive mix shift and a lower cost base as the group enters 2021. The short-term outlook remains highly uncertain due to the prolonged recovery in air traffic. The group remains highly liquid, while management expects to generate free cash flow in line with the EUR 1 billion generated in 2020. We remain positive on the group’s long-term fundamentals driven by a young fleet (lower retirement risk), favorable narrow-body exposure and an order backlog of 9,200 engines. We aren't making any changes to our forecasts and maintain our EUR 142 fair value estimate. Shares have recovered sharply since the lows of last year, but still offer decent upside for a high-quality business.