H1 COI below expectations, full year guidance unchanged but challenging
H1 COI came in at €80.4m (vs. UBSe €146, Bloomberg cons €142m) and includes a
€55m FX tailwind. Guidance for the full year remains unchanged at "COI close to the
level of FY 14/15" implying a challenging target for 2H COI of ~€230m vs. €136m
achieved in H2 FY15/16. Zodic expects the improvement to be driven by a positive
volume effect and a decrease in cost overruns. Zodiac expects to meet Net Debt/EBITDA
<3x covenant without taking into account the hybrid financing set in place. We
estimate that this implies a significant improvement in cash generation in H2 to ~
€360m vs. ~€120m generated in H2 2014/2015. The press release does not offer any
indication about FY 17 targets.
Q: How did the results compare vs. expectations?
Zodiac has already reported its H1 16 sales. Zodiac reported H1 16 group EBITA of
€80.4m (3.2% margin, UBSe €146m), of which Aerosafety EBITA of €50m (UBSe
€53m), Aircraft Systems EBITA of €103m (UBSe €109.4m) and Aircraft Interiors EBITA
loss of €-66m (UBSe -€10m).
Q: How would we expect investors to react?
We expect investor focus to be on: 1) cash and profit generation potential in 2H FY16
and beyond, 2) the learning curve progress on the A350 and C Series, 3) book to bill.
Valuation: trades on 17.3x EV/EBITA, 21.9x P/E
Our €17.5 price target is based on 9% WACC, 5 year profit growth of 18% CAGR
from FY15/16E and cash conversion of 82%, which implies a fair value multiple of
18.8x FY15/16E EV/EBITA.