Airbus — Increasing rewards from civil aircraft

Airbus — Increasing rewards from civil aircraft

Airbus reported Q218 adjusted EBIT well ahead of consensus, on sales modestly better than market forecasts. The beat was mainly driven by improvements on the A350 programme. Guidance is unchanged except for the addition of the A220 in H218. Prospects for Airbus Defence & Space (ADS) and Helicopters also appear to be improving, and as civil aircraft delivers improving financials, group cash and earnings should grow strongly into the next decade.

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Airbus

Increasing rewards from civil aircraft

Aerospace & defence

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27 July 2018

Price

€109.6

Market cap

€85bn

US$1.17/€

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Share details

Code

AIR

Listing

Euronext

Shares in issue

775.6m

Business description

Airbus is the European manufacturer of large civil passenger jets, which competes directly with Boeing of the US. The group also produces and supports helicopters, space equipment, military aircraft and other defence equipment.

Bull

Huge civil aircraft backlog representing over 10 years (at 2017 delivery levels).

Production rates are set to rise from the recent plateau as A320neo transitions to 60 per month by mid-FY19 and A350 moves to rate 10 per month by end 2018.

Cash conversion should improve as the new product investment phase in Civil wanes.

Bear

Continuing issues in military aircraft, although A400M contractual resolution appears closer.

Although improving, A320 neo engine delays mean heavy H2 skew of delivery schedule to achieve guidance.

Ongoing SFO and PNF investigations hold the potential for imposition of monetary penalties.

Analysts

Andy Chambers

+44 (0)20 3077 5700

Annabel Hewson

+44 (0)20 3077 5700

Airbus is a client of Edison Investment Research Limited

Airbus reported Q218 adjusted EBIT well ahead of consensus, on sales modestly better than market forecasts. The beat was mainly driven by improvements on the A350 programme. Guidance is unchanged except for the addition of the A220 in H218. Prospects for Airbus Defence & Space (ADS) and Helicopters also appear to be improving, and as civil aircraft delivers improving financials, group cash and earnings should grow strongly into the next decade.

Q218 shows strong progress

Sales rose 8% to €14.9bn (consensus €14.6bn, Q217 €13.7bn) and adjusted EBIT almost doubled to €1,142m from €572m in Q217 (consensus €988m). The higher profit was largely attributed to reduced losses on the A350 programme as recurring costs fall, learning curve benefits accrue as the ramp up matures and a favourable price mix (a lower proportion of deliveries with launch discounts). Engine supply issues seem to be subsiding on the A320 programme, with more neos (new engine options) than ceos (current engine options) delivered for the first time in June. Overall civil adjusted EBIT rose to €908m (Q217 €360m). Airbus Helicopters and ADS also improved with adjusted EBIT rising to €138m (Q217 €86m) and €197m (Q217 €180m) respectively on flat revenues in each division, allowing for disposals. H118 group sales were relatively flat at €25.0bn (H117 €25.2bn) and adjusted EBIT doubled to €1.2bn (H117 €0.6bn). A modest €129m Q218 underlying free cash outflow also improved thanks to recovering deliveries, higher pre delivery payments and lower payments to engine suppliers due to Q1 supply delays.

Guidance indicates solid growth

Guidance is unchanged except for the addition of the A220 (formerly the C-Series) programme in H218 following Airbus’s entry. Airbus still expects to deliver around 800 aircraft in 2018, excluding 18 A220’s. Group guidance is now for adjusted EBIT of €5.0bn for FY18, including an EBIT loss of €0.2bn from the A220 that is yet to be reflected in consensus. FCF before M&A and customer financing of close to €3bn for the ongoing business is reduced by €0.3bn by the A220. However, at the net cash level the A220 cash outflow is largely mitigated by the funding agreement, as will be the outflows through to 2021.

Valuation: Rating reflects growth potential

As ADS and Helicopters prospects also appear to be improving and the civil aircraft activity generates increasing returns from the improving new aircraft programmes, EPS and cash flow should sustain strong growth, supporting a 19.6x FY19e PER.

Consensus estimates

Year
end

Revenue
(€bn)

Adj EBIT
(€bn
)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/16

66.6

3.96

3.31

1.35

33.1

1.2

12/17

59.0

3.19

3.71

1.50

29.5

1.4

12/18e

63.4

5.17

4.51

1.76

24.3

1.6

12/19e

69.0

6.24

5.60

2.11

19.6

1.9

Source: Company reports, Bloomberg

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Sydney +61 (0)2 8249 8342

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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. 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 pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Airbus and 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 [2014]. "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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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