Senior : Aerospace Visibility, Flexonics Opportunity

Senior’s (SNR.L) investor evening concentrated on the Flexonics operations, accounting for some 34% of group revenues, and highlighted that while visibility may not be as strong as in the Aerospace division, the group has both growth opportunities and the flexibility to ensure profitable growth continues. The Q3 IMS highlighted that performance was as anticipated but also indicated a degree of caution, which is expected given global economic concerns. We feel upper-end consensus may well ease but the long-term opportunity for growth remains intact.

Q3 IMS shows Senior better placed than many
Senior’s IMS highlighted that performance was very much in line with expectations set at the half year with commercial aerospace the bright spot while defence, European automotive and North American truck showed signs of a slowdown. Despite such growing headwinds, Senior provides a business positioned to capitalise on growing build rates in commercial aerospace, while delivering an increasing operational performance from areas that would at first glance appear to be under operational strain.

Aerospace visibility and Flexonics opportunity
With visibility in commercial aerospace supported by a substantial backlog at Boeing and Airbus, the main question is the resilience of Flexonics given the mixed messages emanating from OEMs on both sides of the Atlantic. Yesterday’s investor event showed that each business in the division has several growth opportunities driven by increasing globalisation and a focus on engineered solutions. Flexonics has also shown itself to be a resilient and flexible operation able to rapidly adjust to demand while positioning for long-term value.

Valuation: In line with commercial peers
While the IMS showed some caution, we believe the fundamentals within the group remain attractive with highly engineered solutions, high barriers to entry and increasingly strong positions with global customers. The current rating of 10.9x CY13 EPS sits between Meggitt at 10.3x and Rolls-Royce at 13.5x.

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