AEROSPACE & DEFENSE : FCAS cancelled - potential next steps and alternative solutions

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AEROSPACE & DEFENSE : FCAS cancelled - potential next steps and alternative solutions

Refinitiv

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.

Dassault Aviation (Outperform, Target Price EUR350)

Dassault Aviation (AM) is the leading European fighter jet OEM and has only just

started to convert its EUR44bn Defence order book into profitable revenues.