Safran Results in Line With Guidance for 2022; FVE Maintained

Wide-moat Safran SAF exited 2022 with robust organic revenue growth of 16%, which together with margin expansion led to a 28% organic increase in recurring operating income. The business expanded group-level recurring operating margin by 80 basis points to 12.6%. Group-level margin benefited from a positive mix effect with high growth in the largest and most profitable division, aerospace propulsion. The division grew organic revenue by 18%, outpacing group-level growth, but also importantly at an 18% operating income margin was more than 500 basis points above the group. Equipment deliveries and aftermarket services growth drove the aerospace propulsion division’s revenue, with an increase in volume for LEAP engine deliveries (1,136 versus 845 in 2021) and 29% growth in aftermarket revenue (in U.S. dollar terms). The results were in line with guidance, raised with the third-quarter 2022 results. We maintain our EUR 160 fair value estimate.

Positive working capital movements from advanced customer payments and an improvement in profitability led to EUR 2.5 billion in free cash flow, up from EUR 1.7 billion in 2021. Guidance for 2023 implies 21% growth in revenue to EUR 23 billion while the EBIT margin is expected to increase to 13%, still below the 15.3% pre-coronavirus margin. Supporting 2023 revenue growth will be the high backlog of nearly 10,000 LEAP engines together with a continued recovery in air traffic back to 2019 levels. Management expects 50% growth in LEAP engine deliveries.