“I've been walking these sidewalks for too long not to know that the market is always right”. With a warm mind, while the news of the defeat of the Leonardo stock arrives from Piazza Affari, Alessandro Profumo tries to play down. "The fact of having presented a lower than expected guidance - he explains to journalists - made one foresee such a reaction". But, to underline his disappointment, the manager closed the press conference like this: "I thank you journalists because your questions focused on the long-term goals we want to achieve". An indirect rebuke to the signals coming from analysts, much more severe after the guidance that emerged from the business plan.
Even this morning, in fact, the share of the former Finmeccanica did not get up from the carpet, down by almost 3,6% in the early stages, timidly recovering to -1,1% in mid-morning after the terrible Ko, yesterday -12,5, XNUMX%, suffered after the presentation of the five-year business plan punished for having proposed too weak growth targets to the market, according to the operators, in the short term.
TRADERS DISAPPOINTED WITH CASH FLOW
In particular, after filing a "disappointing" 2017, it confirmed the downwards revised guidance already in November, at the origin of a sharp drop in the share: revenues between 11,5 and 12 billion, ebitda at 1,05- 1,1 billion and the Focf (which stands for cash flow from operations, ie the available cash flow) between 500 and 600 million. "It was precisely the confirmation of the data on cash flow - says an operator - that triggered the sales, even before the start of the conference call with the analysts". Certainly, then, the conservative estimates on expected orders between 11,3 and 11,7 billion did not help due to the negative impact of the failure (for now) to finalize a contract on the C27 J export aircraft. In 2018 revenues, according to Leonardo's own estimates, will remain stable as will debts (2,6 billion) also considering the effect of the recent repurchase of the bond in dollars, while the cash flow, estimated at 100 million, will weigh the roadmap of the contract on the Eurofighters, the reduction of advances from customers and the greater investments necessary to support growth.
GROWING ORDERS
On the other hand, orders (12,5-13 billion) and EBITDA (1,07-1,12 billion) will grow again. But the real change of course will only take place in 2020 when cash generation will fly again, under the pressure of helicopters, Profumo's trump card. In the five-year period, orders will rise at a rate of 6% per annum with a ratio between orders and revenues of at least 1, up to guaranteeing double-digit profitability growth in 2020. Is it right to look at 5-year objectives? Or are analysts right to remember that, in the wake of what Keynes claimed, "in the medium term we will all be dead"? An international operator can (legitimately) decide to suggest a "sell" today, only to revise the judgment later. But in an Italian portfolio it is wise to provide space for a strategic asset for the balance of the Italian system.
This can also be explained different attitude of international analysts compared to Italian ones. JP Morgan, which cut the target from 12 euros to 11 euros with a neutral opinion. Same move by Socgen, which brought the target price from 14 to 13 euros while confirming the buy recommendation.
In reverse, Italian analysts are in favor of Profumo's plan. Banca Akros confirmed the buy and the target of 14,25 euros, emphasizing that the business plan presented yesterday by CEO Alessandro Profumo outlines a better outlook for the recovery of revenues and EBITDA than the consensus estimates. According to the broker, although the cash flow indications did not please the market, the goal of achieving a 50% conversion rate from 2020 onwards is not far off and probably better than the consensus estimates, which predicts a generation of cash of 350-400 million".
In essence, for Banca Akros “yesterday's market reaction was exaggerated. The 2017 results have been confirmed as a starting point and the reference market is recovering. The modest 2018 and 2019 cash flow estimates are bad news, but we understand why. We don't think much has changed for the stock and we remain positive."
It is also positive Mediobanca Securities, which has no rating on the stock but says it is convinced that "the company is taking the right steps to resolve the production problems that hit the helicopter division in 2017. This should also allow the group to benefit from a recovery in the civil helicopter market ”. “The share – adds the broker – trades with a price/earnings multiple of 10 times based on 2018 estimates which represents a discount of over 40% compared to competitors”. The Achilles' heel lies in the fact that “The plan seems well supported only in the last part of its horizon. We believe that the company must do more to convince the market after the cautious indications provided for the short-medium term".
