Analyst Note| Joachim Kotze |
Unsurprisingly, no segment escaped sales declines in wide-moat Safran’s third-quarter trading update. Organic group sales declined 42% to EUR 3,382 million in the third quarter compared with 2019 Low levels of air traffic, and airline customers scrambling to reserve cash, continues to weigh heavily on new engine deliveries and aftermarket spare parts demand. The group is doing a good job of preserving cash and cutting costs, with the measures exceeding management’s expectations and guidance. Its permanent employee headcount has been reduced by 16% since the start of the crisis, while the group expects to reduce costs in excess of 20%. Liquidity is strong at EUR 4.1 billion of undrawn facilities. Management reiterated guidance for the full year, expecting sales to drop 35%, generating an EBIT margin of 10%. We believe Safran is well-positioned relative to peers as its young fleet lowers retirement risks and has high exposure to narrow-body aircraft, which should experience a faster recovery than wide-body aircraft. Shares trade below our FVE of EUR 135 and present patient investors with an attractive entry point.