(News Bulletin 247) – The Swiss bank lowered its recommendation from “buy” to “neutral” on the stock, preferring its German comparable MTU Aero.
Since the start of the year, Safran has had a very good performance on the Paris Stock Exchange. The engine and aeronautical equipment manufacturer recorded the second strongest growth in the CAC 40, with an increase of 26% since January 1.
The group led by Olivier Andriès has taken full advantage of the rebound in air traffic, synonymous with more visits to its workshops for repair, overhaul, maintenance services and spare parts sales, which constitute the driving force of its profitability.
But, as is often the case with these robust and well-managed stocks, the valuation can raise questions and encourage investors to play other less expensive stocks in the sector (we can think of Hermès in luxury which is at the heart of similar debates). .
This is somewhat the idea that UBS is developing. In a note published this Thursday, the Swiss bank lowered its advice on the value from “buy” to “neutral” without changing its price target, which remains at 165 euros. This weighs on the Safran share which drops 1.3% around 2:15 p.m., to 147.5 euros, when the CAC 40 gains 0.4% at the same time.
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According to its own data, the bank notes that “Safran is, after Rolls Royce, the stock on which investors are the most positive in this space (in the aeronautics and defense sector, Editor’s note”).
“Our conversations with investors confirm this idea, with the group commonly cited as being exposed to longer-term themes, but with no impact on the unquantifiable headwinds from the GTF (an engine family of the American Pratt&Whitney which is currently experiencing technical problems and in which the German company MTU Aero has a stake, Editor’s note)”, she continues.
This very positive market sentiment limits the potential for a positive surprise on the stock, according to UBS, which notes that the stock currently trades at 25 times expected profits over one year compared to 20 times its historical average prior to the pandemic.
The establishment thus prefers MTU Aero to Safran to play the aeronautical engine manufacturer sector, judging that the difficulties in the GTF (contamination on the metal powder used on engine parts delivered between 2015 and 2021) can offer opportunities for Buy at a good price from the Munich-based company.
Towards an increase in market share for Leap?
The bank has also revised downwards the number of workshop visits for the CFM56 engine for 2025. This engine is the best-selling in the world, marketed by CFM international, the joint venture of General Electric and Safran. This best-seller has a large installed base around the world and workshop visits to these engines provide a significant source of revenue and growth for Safran. UBS is therefore counting on 2,300 visits in 2025 compared to 2,550 previously.
The explanation comes from the fact that with the problems on the GTF, planes with new generation engines are temporarily grounded to resolve technical problems. As a result, airlines should intensify the use of aircraft equipped with older generation engines, such as the CFM56, notes UBS. This increases the prices of Safran’s after-sales services and accelerates workshop visits in 2023 or even 2024 but reduces them for 2025, since these visits are in reality brought forward in time.
Interestingly, however, UBS believes that the Leap engine, CFM International’s new engine, should be able to take advantage of the difficulties of Pratt&Whitny’s GTF, by increasing its market share on the A320 neo, Airbus’ best-selling aircraft. .
On this aircraft, the aircraft manufacturer’s customer companies can in fact choose between the Leap from Safran and General Electric on the one hand and the GTF from Pratt&Whtiney on the other.
UBS expects Leap’s market share to increase from 55% currently to 60% from 2026.
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