A buying opportunity has emerged in Senior (SNR), as shares in the aeroplane parts supplier take a pause for breath in their five-year-long rally. And while earnings growth has slowed from the 26 per cent average between 2010 and 2012, last year's 7 per cent, with a little help from acquisitions, still looks very attractive. Analysts at Numis Securities currently pencil in the same again for 2014, 8 per cent for 2015 and 9 per cent the year after. That kind of growth values Senior shares at just 13 times forward earnings, dropping to less than 12 for next year. Compare that with 16 and 14.5 for the engineering sector for similar, or slightly lower, growth and Senior looks cheap. It trades at a big discount to peers on an enterprise-value-to-cash-profits basis, too.
- Market share growing
- Civil aircraft production rising fast
- Automotive industry recovery on track
- Shares oversold
- Possible teething problems with A350
- Customers aggressive on pricing
But those forecasts could yet prove to be light, especially given management's reputation for conservative forecasting. In April, the board repeated predictions for further progress this year, particularly during the second half when build rates for new jet planes ramp up. Senior made more than two-thirds of profits from aerospace in 2013, and that's likely to increase this year.
Airbus will begin delivering its new A350 in a few months' time and currently has orders for 742 of them. Each one averages almost $400,000 (£235,000) of parts made by Senior. But Boeing's new 787, against whom the A350 will compete, is worth double that and production is now running at 10 planes every month. Boeing's 737 carries about $200,000 of Senior's kit, but it's easily the UK supplier's biggest money-spinner as the Americans make so many of them - 42 every month, rising to 47 in a few years' time.
In all, the major manufacturers have over 10,000 planes currently on order. Almost half are for the new lightweight narrow-body planes - the Airbus A320neo and Boeing 737Max. That's good news for Senior, which makes an extra 56 per cent from the new A320 and over 30 per cent more from the Max. Yes, the manufacturers are getting keener on price, but Senior is successfully taking costs out to protect margins.
SENIOR (SNR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 263p | MARKET VALUE: | £1.1bn | |
| TOUCH: | 262-263p | 12-MONTH HIGH: | 320p | LOW: 235p |
| FORWARD DIVIDEND YIELD: | 2.4% | FORWARD PE RATIO: | 12 | |
| NET ASSET VALUE: | 87p* | NET DEBT:† | 22% | |
| *Includes intangible assets of £243m, or 58p a share | ||||
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m)** | Earnings per share (p)** | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 622 | 78 | 14.6 | 3.8 |
| 2012 | 713 | 90 | 18.3 | 4.7 |
| 2013 | 776 | 98 | 19.0 | 5.1 |
| 2014** | 831 | 106 | 20.3 | 5.6 |
| 2015** | 885 | 115 | 22.0 | 6.2 |
| % change | +7 | +9 | +8 | +11 |
Normal market size: 7,500 Matched bargain trading Beta:1.1 **Numis Securities forecasts, adjusted PTP and EPS figures †As at 24 April 2014 | ||||
A crucial presence in Asia, where it is currently adding extra capacity, is winning Senior market share, too. Its Thailand facility has won work with Rolls-Royce for the A350 engine and with Spirit AeroSystems on the B787; and Senior has just paid £75.5m for UPECA, a parts maker based in Malaysia where the aerospace industry is growing fast and labour is cheap.
Back on land, there has been a sharp pick-up in truck and car production, which is helping Senior's Flexonics division. Truck sales there rose just 2 per cent in 2013, and car sales fell. But recent figures are already reflecting industry forecasts for a 10 per cent jump in North American truck production this year and 7 per cent in Europe. Car sales in Europe and elsewhere are also rising fast.
Growth here should at least offset part of the decline in the smaller military and defence division. Senior makes parts worth nearly $700,000 for the enormous Airbus A400m military transporter, the production of which is ramping up from just a couple of planes in 2013 to 16 this year and 23 in 2015. The F-35 fighter jet and Boeing's P-8 will chip in progressively more, too. And they must, as the lucrative Black Hawk helicopter and C-130J programmes wind down.
