AERO. & DEFENSE : EZJ accelerating A319 retirements - putting things into perspective

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AERO. & DEFENSE : EZJ accelerating A319 retirements - putting things into perspective

Investment case, valuation and risks

Airbus (Neutral, Target Price EUR190)

Investment case

Airbus is the global leader in commercial aviation with a >50%/~40% share in NB/WB,

the leader in helicopters and among the largest defense & space OEMs in Europe.

Despite its scale, conversion of its c. EUR620bn backlog has repeatedly been held

back by supply chain challenges in the commercial aircraft business. Shares are down

>20% from peak, and while there is value in the business, crystallisation might take

time and require successful integration of Spirit AeroSystems. With Consensus ratings

largely positive and our 27-30e adj. EBIT MSD+ below Cons, we initiate at Neutral with

a EUR190 TP, implying 13x EV/EBIT 2028e, c. 10% above its 1Y FW average since

2016.

Valuation methodology

We derive our target price from our DCF model using 2.5% terminal growth, a 10.7%

EBIT margin and a WACC of c9% implying 13x/9x EV/EBIT 28/30e.

Risks

To the upside:

Faster ramp-up in the Commercial Aircraft segment supported by better availability of

key components; HELI execution exceeding expectations; D&S momentum surprising to

the upside, deal for next generation fighter jet; better profit and FCF allowing higher cash

return to holders.

To the downside:

Further delay(s) / under-allocation of key CA segment supplies holding back aircraft

deliveries; anaemic budget discussions in key countries (e.g. France); ramp-up in

defense spending taking longer than expected; Space trailing expectations.

MTU Aero Engines (Outperform, Target Price EUR410)

MTU is a leading provider of components for the civil (NB: dominated by P&W's 1000G,

WB: GEnx) and military engine segments, and ranks 2nd globally in MRO with a LDD