Q118 trading continued to be adversely affected by engine delays on the A320neo programmes, which constrained deliveries as the manufacturing programme ramps up. Nevertheless, adjusted EBIT actually improved year-on-year. Assuming the corrective actions are successful, Airbus’s sequential progress in cash flow and profitability should become more consistent. Management appears confident that with current A320 and A350 ramp-ups being achieved by mid-2019 and the A400M cash profile improving from next year, strong EPS development and cash growth are in prospect. FY18 guidance is for a 63% rise in adjusted EBIT under IFRS 15 to €5.2bn, with sustainable growth increasingly likely in the future.
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Airbus |
Resolving engine delays key for take-off
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Aerospace & defence |
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30 April 2018 |
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Q118 trading continued to be adversely affected by engine delays on the A320neo programmes, which constrained deliveries as the manufacturing programme ramps up. Nevertheless, adjusted EBIT actually improved year-on-year. Assuming the corrective actions are successful, Airbus’s sequential progress in cash flow and profitability should become more consistent. Management appears confident that with current A320 and A350 ramp-ups being achieved by mid-2019 and the A400M cash profile improving from next year, strong EPS development and cash growth are in prospect. FY18 guidance is for a 63% rise in adjusted EBIT under IFRS 15 to €5.2bn, with sustainable growth increasingly likely in the future.
Progress in Q1 despite delivery delays
Q1 results were reported after the adoption of IFRS 15. Q118 revenue of €10.1bn (Q117: €11.4bn restated) compared to consensus of €10.2bn. Airbus commercial aircraft revenues fell by almost €1bn to €7.2bn, reflecting lower aircraft deliveries (Q118: 121 vs Q117: 136) as engine delays held back completions on the A320neo family as well as adverse unhedged FX movements. However, the adjusted EBIT loss for the operation reduced to €41m from a loss of €103m in Q117. The decline in sales also reflected disposals by Airbus Helicopters (AH) and Airbus Defence and Space (ADS), which were otherwise relatively stable y-o-y, especially in terms of adjusted EBIT, which totalled €109m. For the group Q118 adjusted EBIT of €14m (Q117: -€19m restated) vs consensus of -€63m. The free cash outflow before M&A and customer financing was €3.8bn (Q117: outflow €1.3bn), reflecting the build-up of undelivered inventory as well as unfavourable timing on trade liabilities.
Moving to more consistent cash inflow growth
As the civil ramp-ups are achieved, Airbus should move down the learning curve and be able to deliver improving margins and more favourable cash flow dynamics. Guidance for 800 deliveries this year has been reiterated implying H218 catch-up. Feasibility studies on further rate increases to 70+ per month for the A320 are indicative of the potential for growth to be sustained into the mid-2020’s. Greater stability in AH and improved cash flow at ADS as the €1bn consumption in FY18 by the A400m transitions to a likely cash inflow in FY20 should also help.
Valuation: Moving to more sustained growth
FY18 is all about H2 catch-up but, assuming success, the improvement expected in EPS over the next few years should be supported by a more consistent cash flow growth now that the investment and ramp-up phases are completing in civil.
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Consensus estimates
Source: Company reports, Bloomberg. Note: IFRS 15 adjusted from FY17 except FY17 EPS. |
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Disclaimer
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Disclaimer
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STEMMER IMAGING (SI) started its life as a listed company by posting the highest half-year results in its history. We expect further improvement as SI benefits from its broad product portfolio, customisation expertise and extensive customer base across many industries to take advantage of double-digit growth in the machine vision industry. We expect this organic growth to be supplemented with acquisitions, as management has allocated half of the €51m (gross) raised at the IPO in February for this purpose. Management already has an exemplary track record in this area, the most recent acquisition being that of Data Vision this January, which made SI the largest machine vision supplier in the Benelux region.