Better than expected organic growth, but still behind schedule on the A350 deliveries
Q: What were the most noteworthy areas in the results?
Zodiac reported Q3 organic revenue growth rate of 4.4% y/y (UBSe 2% y/y) supported
by strong growth in Cabin and aftermarket, that more than offset the headwinds in
bizjets and helicopters. Guidance for the full year was confirmed and management
reiterated expectations to get back to operational performance in 15 months, with
normalization of financial performance following thereafter. We perceive as positive the
progress made in Seats: a) certification of dynamic shells, b) supply chain
improvements. However, we remain concerned by the A350 lavatory delivery rates
remaining behind schedule.
Q: How did the results compare vs. expectations?
Zodiac reported Q3 sales of €1,353m (up 3.7% y/y, UBSe €1,298m, cons €1,290m),
with Aerosafety sales of €149m (down 7.7% y/y organically, UBSe €168m), Aircraft
Systems sales of €366m (up 4.9% y/y organically, UBSe €338m), Seats sales of
€385.7m (up 3.2% y/y organically, UBSe €378m), and Cabins of €451.9m (up 10% y/y
organically, UBSe €414m).
Q: How would we expect investors to react?
On the positive side: a) Q3 organic growth is encouraging showing sequential
improvement after the -1.7% y/y organic decline in H1 and; b) confirmed guidance;
could be supportive for the stock after the recent underperformance. Nevertheless we
believe uncertainty remains on the back of: a) persistence of delivery delays with A350
lavatories caused by quality issues, b) shape of the financial recovery in FY 16/17 and
thereafter.
Valuation: trading on18.7x calendar 16E EV/EBITA, 24.1x calendar 16E P/E
Our €18.5 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.