Airbus and Boeing supplier Senior reports strong 2023 results

The performance of Senior (SNR) is bound up with the post-pandemic recovery narrative. So it was perhaps unsurprising that the UK aerospace engineer chose to crank up the full-year dividend on the back of a 54 per cent increase in net earnings. However, the reported earnings boost was largely attributable to a favourable tax outcome for the year. And, despite the double-digit increase in the top line, the group’s operating margin increased by a relatively modest 10 basis points to 3.93 per cent.

Nonetheless, Senior has witnessed increased civil aircraft production rates, and demand in the land vehicle markets has also been heading in the right direction. The former sales channel may have been open to question because of Boeing’s (US:BA) ongoing problems with the US Federal Aviation Administration. The US aerospace giant has been asked to produce a comprehensive remedial plan to address quality-control issues that have plagued its 737 MAX production line, but management is confident that Boeing will maintain its master schedule.

At any rate, Senior was recently awarded two separate contracts to supply several complex components to Airbus SAS and Airbus Atlantic. Demand across the aviation industry should continue to grow due to the ongoing recovery in revenue passenger-kilometres (RPKs). The rate of RPKs increased by 37 per cent last year, reaching 94 per cent of 2019 (pre-pandemic) levels.

Solid trading enabled Senior’s Flexonics arm to deliver an 18 per cent increase in revenue to £348mn “with double-digit growth in all core markets”. Management did caution, however, that demand could soften at its land vehicle division, reflecting the "market outlook for more normalised levels of production".

The group remains on track to achieve its stated return on capital employed target of at least 13.5 per cent. While the Airbus (FR:AIR) agreements add ballast to the investment case, a forward rating of 17 times FactSet consensus earnings suggests the market is up to speed. Hold.

Last IC view: Hold, 166p, 31 Jul 2023