Senior — Update 19 November 2015

Senior — Update 19 November 2015

Senior

Analyst avatar placeholder

Written by

Senior

Dealing with pressure

Aerospace & defence

QuickView

20 November 2015

Price

239.40p

Market cap

£1,004m

Share price graph

Share details

Code

SNR

Listing

LSE

Shares in issue

419.4m

Business description

Senior designs, manufactures and markets high-technology components and systems for the principal original equipment producers in the worldwide aerospace, defence, land vehicle and energy markets. The group is split into two divisions: Aerospace and Flexonics, servicing five key sectors.

Bull

Exposure to long-term large commercial aircraft ramp-ups; defence spending appears to be starting to rise.

Strong financial position facilitates M&A to augment growth.

Temporary cost pressures to protect customer schedules should unwind in early FY16.

Bear

Weakness in agritech, mining and oil & gas end-market demand.

Temporary margin pressures in aerospace.

Lower profits from machined aluminium scrap recycling due to price falls.

Analysts

Andy Chambers

+44 (0)20 3681 2525

Roger Johnston

+44 (0)20 3077 5722

Senior has been a very positive story over the last decade, although market performance this year has been weak. However, as a further step in augmenting growth, the purchase of Steico Industries appears to be a positive for the new CEO. Despite difficult trading conditions in some markets, Senior is bearing up relatively well and should benefit from rising aerospace volumes in the coming years.

Market pressures

Senior has issued a trading update for the four months to October. Adjusted pre-tax profits for FY15 are now likely to be at the lower end of the market range, or around £99m. This is similar to other recent trading comments by peers. In Aerospace, output of large commercial aircraft growth increased modestly, but there were areas of reduced demand for both corporate jets and civil helicopters. Divisional margins bore some temporary extra costs to protect customer schedules, with lower returns from recycling waste aluminium also apparent. In Flexonics, there was a slowing in growth in North American heavy truck markets and weaker demand from agritech, mining and energy markets, with some destocking evident.

Acquisition of Steico

Senior is buying Steico Industries for $90m (£59.2m). Founded in 2001, Steico is a California-based supplier of precision tubing and duct assemblies for civil and defence aerospace markets. Its products are focused on 3.5” diameters and below, complementing Senior’s larger size range. Sales of c $38m are derived 37% from large civil aircraft markets, 31% from defence, 22% from corporate jets and 5% from civil helicopters. As a tier 1 supplier in aerospace, Steico is growing market share and is well positioned on growth platforms such as the Boeing B737MAX, Airbus A350XWB and F-35 Lightning II (Joint Strike Fighter, JSF). Steico should grow sales ahead of markets due to these exposures as volumes ramp up over the next five years. While multiples seem optically high (FY15e EV/sales 2.4x, EV/trading profit [before depreciation] 12x), it is expected to create value from the second full year of ownership. The deal is being largely funded from the recent $80m loan notes private placement with a coupon of 3.67%.

Valuation: Rated for stability, not growth

In FY16, the market expects earnings to rise from the recent plateau. Aerospace margins should recover with rising sales, bolstered by robust profits in Flexonics despite some tough markets. The FY17e rating may start to appear undemanding.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/13

775.1

107.6

19.00

5.12

12.6

2.1

12/14

820.8

111.6

19.84

5.63

12.1

2.4

12/15e

858.2

100.4

19.16

6.13

12.5

2.6

12/16e

885.5

106.1

19.83

6.62

12.1

2.8

Source: Company reports, Thomson Reuters consensus estimates

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2015 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2015]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

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

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

Research: Financials

OTC Markets Group — Update 19 November 2015

OTC Markets Group

Continue Reading
Cookie Policy Overview
Edison Group

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping us understand which section of the website you find more interesting and useful. See our Cookie Policy for more information.

Strictly necessary and functional

These cookies are used to deliver our website and content. Strictly necessary cookies relate to our hosting environment, and functional cookies are used to facilitate social logins, social sharing and rich-media content embeds.

Advertising

Advertising Cookies collect information about your browsing habits such as the pages you visit and links you follow. These audience insights are used to make our website more relevant.

Performance

Performance Cookies collect anonymous information designed to help us improve the site and respond to the needs of our audiences. We use this information to make our site faster, more relevant and improve the navigation for all users.