While Airbus has continued to maintain guidance for FY17, the demands to deliver in Q4 are clear. Although A320neo engine issues keep the pressure on the production schedule, the company is making good progress on its other programmes. A resumption of EPS growth in FY18 remains the main support for the investment case.
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Airbus |
Transition management continues
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2 November 2017 |
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While Airbus has continued to maintain guidance for FY17, the demands to deliver in Q4 are clear. Although A320neo engine issues keep the pressure on the production schedule, the company is making good progress on its other programmes. A resumption of EPS growth in FY18 remains the main support for the investment case.
Programme issues persist
Continuing the trend from H1, Q3 results demonstrated a stable top line and a step down in adjusted EBIT. Reported adjusted EBIT of €1,796m represented a 25% decline on the first nine months of 2016. While the Q317 figure of €697m was just 4% down on Q316 (€729m), it did demonstrate an improvement in both the Commercial Aircraft and Helicopters divisions. Investment in innovation at company HQ does explain some of the decline. The engine issues continued to constrain A320neo production. While 90 aircraft were delivered to 19 customers in Q3, new engine availability and allocation between the OEM and spare pools will reduce the FY delivery total to slightly below the 200 targeted. Although full year free cash flow is expected to be similar to 2016 before M&A and customer financing, there has clearly been an impact on cash performance from inventory build for the production ramp-up and engine delays on neo with a negative working capital move of €4.5bn ytd. In addition to the ongoing UK Serious Fraud Office (SFO) and France’s Parquet National Financier (PNF) investigations, the company has discovered and declared certain inaccuracies with filings with the US Department of State relating to part 130 of ITAR. Importantly, FY guidance for the group has been maintained.
All to deliver in Q4
December is always Airbus’s busiest month for deliveries. Since 2008 it has shipped between 10-16% of its total annual deliveries in December. As described, the A320neo delivery profile is very much loaded into Q4. Moving into 2018, the A320 neo should account for more than half of single-aisle deliveries for the group. In addition, the A350 ramp-up is making good progress towards break-even by the end of the decade and the A330neo maiden flight was a successful milestone.
Valuation: Momentum to build
At the H117 report we noted that FY17 would be heavily skewed to the second half to deliver FY guidance, and the Q4 delivery profile is now very much in focus. We continue to believe that cash performance should improve and earnings growth should accelerate in FY18 as the current programme issues are overcome.
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Consensus estimates
Source: Bloomberg consensus. Note: *Historic figures are EBIT adjusted as per Airbus’s calculation. |
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Disclaimer
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Disclaimer
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Research: Energy & Resources
Investor focus is understandably on the execution of Hurricane’s Lancaster EPS development. First oil from Lancaster will complete the transition from explorer to producer and unlock a stream of cash flow that management can direct towards appraisal, full field development or shareholder returns. In this note, we look at progress made to date and the potential for farm-down of the Greater Lancaster Area (GLA) and Greater Warwick Area (GWA) to fund further appraisal ahead of full field development. Our updated RENAV stands at 79p/share, down from 103p/share, reflecting a recent reduction in our long-term (2022) oil price assumption from $80/bbl to $70/bbl.