Thanks to a lot of work carried out on its cost structure to lower its operational breakeven point, the engine manufacturer is confirming its objectives for the year and is preparing for the recovery of the aeronautics sector from 2022. A stability gives hope for a rapid gain in two weeks.
Heavily penalized by the disaster in air traffic and the aviation industry caused by the health crisis, the French engine manufacturer sees some positive signs in the third quarter. Despite sales still falling sharply by 42% to 3.38 billion, based on exchange-adjusted data and on a like-for-like basis, propulsion and original equipment activities are starting to recover and certain markets, such as China, have renewed encouraging prospects with a return of air traffic not far from the pre-crisis dynamic (-4% for domestic flights in mid-October). One sign is clear: Boeing announces the resumption of flights of the 737 max in the coming weeks and Airbus has already asked equipment manufacturers, including Safran, to stand ready for an increase in production rates of the A320 from next year. Given the length of the production cycle in the aeronautics sector, Safran does not expect its financial performance to accelerate until 2022. In the meantime, a lot of work to optimize its cost structure is being carried out and should allow the group to emerge from the crisis stronger. Since the start of the year, headcount and operational costs have been reduced by 20%, while subcontracting costs have fallen by 42% and investments cut by 74%. This, despite the lack of visibility of the aeronautics sector, allows Safran management to confirm its objectives for the year of a 35% drop in revenue adjusted for currency effects and a current operating margin of 10 %. A return to a positive generation of net cash flows is also expected from the second half of the year.
The stability refunded at 10 euros under conditions
At 24.5 and 17.7 times the estimated profits for 2021 and 2022, the title is not overpriced in view of the strength of the engine manufacturer’s financial structure and its ability to generate net cash flow. The file can be played by means of a stability issued by Societe Generale with a deadline of November 20, 2020 and two limits located at 76 euros for the lowest and 114 euros for the highest. Let us recall the mechanism of a stability: it will be reimbursed 10 euros at maturity in the event that the Safran share continues to evolve until then within the zone of fluctuations delimited by the two limits (76/114 euros) . Given its purchase price, the certificate is likely to deliver a gain of 18.8% in two working weeks. But beware of the risk profile of stability. Far from being negligible, the product can lose all of its value if Safran shares exit from above or below the corridor defined by the two terminals.
Our advice: buy a Safran stability issued by Société Générale (code: LU2088532796); deadline: November 20, 2020; terminals: 76/114 euros; price: 8.42 euros; portion: 1.