Performance: -15.5%
Paris-listed Airbus SE was one of the bigger losers in our portfolio for the four-month period, with a 15.5% loss. The company is a global aeronautics and space company that operates three main segments, which are Airbus aircraft, defence and space, and helicopters. The case for investing in the company is that it should benefit greatly from the global pandemic recovery and the reopening of economies. Travel demand should pick up as pandemicrelated fears subside, greatly benefitting aircraft manufacturers such as Airbus.
However, higher fuel prices, as well as slowing economic growth in the US, Europe and China, along with inflation, have weighed on consumer demand for air travel over the past few months, thus adversely impacting the company’s share price. We believe that consumer demand for air travel will eventually pick up, as there is still much room to return to pre-pandemic levels. Higher build rates for the Airbus A320 family of aircraft, which have higher margins, should greatly boost the company’s earnings once air travel returns to pre-pandemic levels. Further, the demand for more modern, fuel-efficient and low-emissions aircraft from airlines globally should also improve Airbus’ earnings and margins as it focuses on its more profitable narrow-body aircraft.
Currently, over the short term, market fear tends to engulf any potential prospects of the company, hence weighing down on its share price. The latest earnings report shows that the defence and space segment continues to support Airbus’ earnings, as military spending continues to rise. Further, higher oil prices should boost the company’s helicopter segment, due to higher demand for helicopters for offshore oil exploration services.
At current prices, the company’s yields are attractive compared to the risk-free rate of 2.3%. Airbus’ earnings yield, operating cash flow yield and free cash flow yield are 6.1%, 5.4% and 2.5% respectively. Compared to global peers, the company trades at 10% and 31% discounts for its forward PE and EV/Ebitda, implying that it is an attractive pick-up. The company’s balance sheet is solid, with a current ratio of 1.2 times, a net cash position and an interest coverage ratio of 21.6 times.
Sentiment-wise, there are 22 “buy” calls, three “hold” calls and no “sell” call on the company from analysts. The average target price for the company is almost 60% above its current trading price of EUR94.12 ($137.56). Based on our in-house valuations, we think the company’s fair valuation is at least 25% above its current trading price. Over the next few months, we project that the effects of the Russia-Ukraine war on fuel prices will wane, and travel demand will pick up sharply, supported by the tapering pandemic-related fears.
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Disclaimer: This is a virtual portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy or sell stocks, including the stocks mentioned herein. This portfolio does not take into account the investor’s financial situation, investment objectives, investment horizon, risk profile, risk tolerance and preferences. Any personal investments should be done at the investor’s own discretion and/or after consulting licensed investment professionals, at their own risk.
