* Rating cut to Underperform: The improved disclosure will allow investors to determine if and when an earnings recovery story will be ready to unfold. We adhere to the idea that the strong increase in installed base will drive
aftermarket growth in the future, but it appears too early still to determine how strong this drive will be (with many moving parts still not stabilised). In the meanwhile, it highlights the short term pressure coming from various
areas of the group (bizjet and regional jet engines, widebody OE, Marine, Defence Aerospace). We believe that the current price levels are anticipating too much of the possible improvement at the end of the decade, with an
unbalanced risk / reward. We cut our rating to Underperform (vs Neutral)
* Earnings changes: As a result of our model reconstruction to reflect the new disclosure elements, we have revised our operating income expectations by -5%, -14% and +2% for 2016-18. This results from cuts in Defence and Marine, with some adjustments up to Civil Aerospace. We are respectively 1%, 9% and 8% below company-provided consensus. We have also reduced our FCF forecasts by GBP180m on average over the period.
* Catalysts: H1 results in July 2016, AGM on May 5.
* Valuation: We revise our target price to 540p (vs 530p), indicating 21% downside potential. It is based on a 2018 SOTP. On this basis, the stock would trade on EV/EBIT of 10.6x and 7.8x 2018E and 2019E, vs a 2004- 2015 average of 9.9x. Using a 2020 SOTP (assuming that nothing new goes wrong) would yield a valuation of 750p, offering a too-limited upside of 10%, in our view.