Senior makes up lost ground

Last year represented a recovery of sorts for Senior (SNR), the engineering group that makes two-thirds of its sales from the aerospace sector.

Revenue grew by almost 30 per cent to £848mn and operating profit trebled to £32.5mn, although both remain below pre-pandemic levels. Reported pre-tax profit was 5 per cent lower due to a prior-year, one-off gain from the sale of a helicopter structures business in the US.

The improved state of the civil aerospace market (which makes up 40 per cent of group sales) drove like-for-like revenue in Senior's aerospace arm up 20 per cent. This helped to double its adjusted operating margin to 3.7 per cent.

Business was also pretty robust in its Flexonics arm, which provides parts for vehicles and the power and energy sector. Margins in this division rose to 8.6 per cent, from 5.9 per cent a year earlier.

Free cash flow also doubled to £27.7mn, although net debt ticked up by £25.8mn following the group's $60mn acquisition of fluid fittings firm Spencer Aerospace – half of which was paid upfront, with the remainder due later this year.

Senior’s shares rose by 3 per cent in early trading to their highest point in more than a year, despite the company saying that ongoing supply chain pressures, including a fire at one of its key suppliers, would mean profits in its aerospace arm will be weighted towards the back end of this year. Working capital, which increased by £28mn to £131mn last year, may also need to be increased this year if snarl-ups persist, it warned.

Demand is holding up well, though, with the board expecting “strong growth” in the year ahead, adding that it remained on track to drive return on capital employed to a minimum of 13.5 per cent. Despite a big improvement last year, it currently remains some way off this – ROCE rose to 4.7 per cent, from 1 per cent in 2021.

China’s recent lifting of its Covid-induced aerospace restrictions adds further momentum to aviation’s recovery, with industry body IATA forecasting that global passenger numbers will reach pre-pandemic levels next year. Senior’s margins should continue to improve as it does, but with its shares trading at more than 24 times forecast earnings they seem to be soaring above the point that represents decent value. We maintain our hold position.

Last IC View: Hold, 139p, 1 Aug 2022