Industrial plan tracking nicely

Finmeccanica 9 November 2015 QuickView

Finmeccanica

Industrial plan tracking nicely

Aerospace & defence

QuickView

9 November 2015

Price

€12.27

Market cap

€7bn

Share price graph

Share details

Code

FNC

Listing

BIT

Shares in issue

578.2m

Business description

Finmeccanica is an Italy-based, top 10 global player in aerospace, defence and security operating in 273 locations, with production facilities in 20 countries and a significant presence in four key markets: Italy, the UK, US and Poland.

Bull

Strong Q3 results reflect improving operational performance.

Completion of disposals of transportation and industrial engineering subsidiaries reduced debt and streamlines portfolio.

New governance and organisational structure designed to improve efficiency and control.

Bear

Caution that Q4 is largest contributor and will require continued performance.

Impact from slowdown in helicopter sales caused by oil and gas market weakness.

Further manufacturing efficiencies still required, particularly in aeronautics.

Analyst

Roger Johnston

+44 (0)20 3077 5722

Finmeccanica’s Q3 results highlighted the clear progress being made in delivery of the industrial plan revealed at the start of 2015. With operating profit improvements clearly coming through and good progress being made in the key areas of restructuring, the group confirmed its confidence for the financial year and revised EBITA expectations up to the top end of previous guidance (€1.13bn), plus an expected €50-60m FX benefit. With the recently announced completion of the transportation disposal to Hitachi, Finmeccanica is now focused on developing as a pure-play aerospace, defence and security group.

Q3 results show promise and impact of restructuring

Finmeccanica delivered good Q3 results highlighting the combined effect of previous restructuring, as well as those driven by the Industrial Plan launched in January 2015. Nine-month revenues were up 4.6% to €9bn, while EBITA improved substantially by 45% to €745m. Even excluding a previous year US$100m provision in DRS, results showed significant underlying improvement across all divisions with ROS increasing >200 bp to 8.3%. The net result before extraordinary transactions improved to €160m (9M14, -€24m). FOCF was -€935m, in line with traditional cash phasing, but this was some €420m better than 9M14 figures as actions to reduce seasonality were undertaken. Net debt improved by €224m to €5,125m.

Industrial Plan progressing well

The Industrial Plan designed to transition Finmeccanica into a higher performing pure-play aerospace, defence and security group was announced in January 2015. Progress against the plan has been as expected, with closure of the sale of the Transportation businesses to Hitachi announced on 2 November, while cost-cutting and rationalisation is showing through in financial results. The strategic reorganisation into a “one-company” structure has also been finalised, with four sectors and seven divisions due to commence in January 2016.

Valuation: ‘New’ Finmeccanica emerging

With Finmeccanica having implemented a rapid turnaround plan to reduce costs, rationalise investment and strengthen the balance sheet, the share price has responded accordingly since January 2015. Focus now turns to longer-term strategic and operational transformation. Q3 results highlighted financial progress, while the strategic plan to reduce footprint and expand market presence where it is strongest will provide a further catalyst for re-rating.

Consensus estimates

Year
end

Revenue
(€m)

EBITA
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/14*

12,764

980

(0.05)

0.00

N/A

N/A

12/15e

12,743

1,002

0.68

0.06

18.0

0.5

12/16e

12,967

1,105

0.80

0.11

15.3

0.9

12/17e

13,353

1,202

0.92

0.21

13.3

1.7

Source: Bloomberg 5 November 2015. Note: *2014 restated for transportation disposal.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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