Transcript Airbus - Squarespace

Airbus (FRA: AIR)
Aleksy Grewal
Tanvi Gala
Akshay Chawdhry
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Gregory Gabovich
I. Industry Overview
II. Company Overview
III. Investment Thesis
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I. Industry Overview
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Industry Overview
Industry Averages and Ratios
Market Share
Sales
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1 year Sales Growth – 2.67%
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Net Profit Margin – 5.72%
•
P/E ratio – 27.23
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Current ratio – 1.44
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Debt to Equity ratio – 13.38
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Total Assets - $43.2 billion
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Total Liabilities - $35.2 billion
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Return on Equity – 23.40%
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Return on Assets – 4.70%
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Inventory Turnover – 7.62
Boeing
Airbus
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Asset Turnover – 0.79
United Technologies
Lockheed Martin
17%
36%
21%
26%
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Boeing
The Boeing 787
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Boeing
Key Financials
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$70,000
Sales – $96.1 billion
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Market Cap - $84.7 billion
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Net Income - $5.1 billion
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Net Profit Margin – 5.38%
•
Business Segments (USD MM)
$60,000
$50,000
$40,000
$30,000
$20,000
EPS – 7.44
$10,000
$0
2012
2013
2014
Commercial
Military
Global Services & Support
Network & Space Systems
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2015
Boeing
Financial Performance (USD MM)
Stock Data
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
Price: $135.33
52-Week High: 150.585
52-Week Low: 102.1
$0
2012
Sales
2013
2014
2015
Net Income
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Boeing
Orders & Deliveries Information
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Orders and Deliveries
Boeing
Airbus
1600
1600
1400
1400
1200
1200
1000
1000
800
800
600
600
400
400
200
200
0
0
2012
2013
Orders
2014
2015
2012
Deliveries
2013
Orders
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2014
Deliveries
2015
Backlog Information
Boeing
Airbus
2015 Backlog
2015 Backlog
20, 0%
779, 14%
762, 11%
140, 2%
346, 5%
524, 9%
80, 1%
5583,
82%
4392, 76%
737
767
777
787
A320
747
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A330
A350
A380
II. Company Overview
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• Airbus Group was founded in 2000
with headquarters in Leiden,
Netherlands
• The company provides aeronautics,
space, and defense-related products
and services worldwide
• The 3 divisions: The Airbus, Airbus
Helicopters, and Airbus Defense &
Space
Market Cap
46.7B
Beta
1.49
Dividend & Yield
0.37 (2.49%)
52 Week High
18.02
52 Week Low
13.25
PE Ratio
14.07
Price/Sales (ttm)
0.65
Price/Book (mrq)
6.37
ROE
49.67%
• Airbus recently celebrated its 10,000 deliveries milestone
• The company delivered A350 – its wide body rival to Boeing’s 787
Dreamliner – to Singapore Airlines, and expected to meet its annual goal
of 50 A350 deliveries
• The controversy involving A380 seems to have died down after Malaysia
Airlines announced it will be using A380s to carry Muslims to Hajj
• CEO Fabrice Bregier is targeting Asian markets, namely Chinese
Airlines
• The A380 could substitute Boeing’s superjumbos 777 and 747
• Airbus aims 12
to overtake Boeing’s annual deliveries by 2020
Innovation Highlights
Risk Factors
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Quantum Satellite: It is the first satellite
able to adapt its coverage, power or position
to suit customer requirements.
E-Fan: World’s first all electric aircraft. This
demonstrator sets the stage for subsequent
versions i.e. E-Fan 2.0.
X6 Helicopter: This next generation, twinengine helicopter will set a benchmark in its
sector. It targets gas emissions and will be
suited for rescue operations
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•
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Financial Market Risks: As a global
company, Airbus’s operations and
performance depends on economic
conditions (Europe, Asia) and exchange rate
fluctuations.
Business Related Risk: Order intake for
commercial aircrafts is dependent on
consumer demand, which fluctuates. Recent
terrorist attacks have largely impacted
willingness to travel. Additionally, Airbus is
dependent on many key suppliers and
contractors.
Environmental Risks: The company faces
strict environmental, health and safety
regulations that increases its operating costs.
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III. Investment Thesis
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III. Investment Thesis
Market Overreaction to Short Term Woes
1. Focus on A320 Neo ramp delays overblown
2. Recent Kingfisher order cancellations mask underlying strength
3. Airbus stock exhibits an extremely high, not fully justified correlation with airlines
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1. A320 Neo Ramp-Up
Market Overreacts to GTF Engine Delay
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“UTX supply bottlenecks on the GTF engine make
uncertain the A320 Neo ramp through 2017E and
2018E, causing us to lower our 2018 EBIT forecast
by 3%” UBS Equity Research
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“UTX subsidiary Pratt & Whitney will deliver ~150
GTF engines in 2016 vs. 200 previously targeted”
Morgan Stanley Equity Research
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1. A320 Neo Ramp-Up
Pratt & Whitney GTF Engine Forecast
1000
800
Engines
800
600
400
400
200
100
200
0
2015
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2016
2017
2018
“We made additional investments to more effectively support the ramp… will reduce PW100G delays”
UTX Q2 2016 Earnings Call
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1. A320 Neo Ramp-Up
Airbus Remains on Track to Deliver
A320 Neo Deliveries
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8
7
6
5
4
3
2
1
0
Jan
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Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Airbus delivered 8 A320 neo aircraft in September with 24 YTD
– CEO Enders says Airbus remains committed to a minimum of 10 A320’s/month
– Designated Toulouse as cabin-furnishing center
We see some risk to 2017E and little to no risk for 2018E
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2. Kingfisher Cancellation
Cancellations Dominated by Kingfisher
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82/107 cancellations attributed to Kingfisher
– Ceased operations in 2012
Remaining 25 cancellations all in 320 Neo’s where Airbus faces significant backlog
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2. Kingfisher Cancellation
Boeing Experiencing Declining Order Trends
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Boeing is currently experiencing a declining order trend, with book to bill around 0.7x
Airbus BTB has been increasing, and over the last few months surpassed that of Boeing
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3. Airline Correlation
Airbus has 90% R-squared value with Airlines
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The market is incorrectly pricing Airbus stock in relation with world airlines
Due to a stable backlog and predictability in future revenues, Airbus should not be punished for airlines’
robust valuation declines
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3. Airline Correlation
Airbus Falsely Correlated to Airlines
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Easyjet, a major Airbus customer issued a profit warning driven by “FX headwinds and other
cost increases”
– However, Easyjet has not trimmed capacity and expects 8% seat growth in FY17
“Turkish airlines has announced it will defer 127 deliveries of its aircrafts due to terrorismrelated activities” MS Equity Research
– Afraid it will cause domino effect
– However, 80 aircraft will still be delivered as non-cancellable and the rest deferred 1-2 years
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3. Airline Correlation
Comparison to Boeing
Boeing Revenue
Defense
Space and
Security,
32%
Commercial
Aerospace,
68%
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Airbus and Boeing both have roughly 70% revenue exposure to the commercial aerospace market
Aside from a relatively steady Helicopter business, these two companies have almost identical revenue
exposure
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3. Airline Correlation
Comparison to Boeing
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Airbus and Boeing both have 380 orders, net of cancellations, as of the end of September 2016.
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Boeing Currently trades at roughly 12.5x EV/EBITDA, while Airbus is around 8.0x.
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The gap in valuation between the two should close as Airbus proves it is able to ramp production of the A320
neo and keep deliveries on schedule.
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