Analyst Note| Joachim Kotze |
Wide-moat Safran’s first-half 2021 results are tracking in line with expectations as sales and EBIT declined organically by 17% and 29%, respectively, as low levels of air traffic continue to weigh on all business segments. Full year 2021 sales and EBIT guidance were maintained, while the free cash flow is now expected to be above 2020 levels, whereas it was previously expected to be in line with the EUR 1 billion generated last year. The group remains highly liquid and cash generative, with free cash flow of EUR 700 million in the first half contributing to a reduction in net debt to EUR 2.5 billion, from EUR 2.8 billion at the beginning of the year. 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 9,300 engines. We maintain our EUR 142 fair value estimate, and while shares have recovered sharply since the lows of last year, there remains decent upside for a high-quality business.