Dassault Aviation's EBIT Takes a Hit As Coronavirus Takes Its Toll; Undervalued With Blurry Outlook

First-half 2020 EBIT of EUR 55 million declined nearly 80% from first-half 2019 as narrow-moat Dassault Aviation’s high fixed cost base could not contend with a 14% drop in sales. Total deliveries of Rafale and Falcon jets declined to 23 compared with 27 in first-half 2019. The new order intake to the value of EUR 1 billion is 65% lower compared with 2019, mainly due to the nonrecurrence of a large Rafale long-term service contract signed in the prior period. The current group order backlog is EUR 16.2 billion, equating to slightly over two years of sales. The group maintains its guidance for full-year deliveries of 13 Rafale jets and lowers the guidance for business jet deliveries to 30 units, from 40 previously. Sales and profits should recover in the second half as the group resumes normal production activity. We maintain our fair value estimate of EUR 1,400 per share and believe shares are undervalued but note the high uncertainty rating stemming from the low-volume, high-value nature of the group’s products.