Overview of the company
The AIRBUS SE corporation was also formerly from 2000 to 2014 was called as the European aeronautic defense and space company (EADS) is an international pioneer in aerospace industry manufacturing and delivering aerospace products and services and solutions to customer on global scale. It is registered in Netherlands and its shares are traded in France, Germany and Spain. It manufactures both inside and outside of the European union. The line of products are divided into three divisions commercial aircrafts, space and defense aircrafts and helicopters. The Helicopters division is the largest holds the record for generating more revenues to the company and also accounts for record number of deliveries made to the customers across the globe. As of December 2017 alone it has 10,926 aircrafts delivered and 12000 helicopters to approximately 3000 customers. The company holds 37000 patents worldwide.
Aviation companies are still under heavy pressure to optimize costs and also scale up their operations levels and as it is evident that they are under pump most operators in this specific industry focus mainly on their core activities and operations and also add additional value by joining hands and collaborating with various partners in the same industry and develop advanced technologies and innovative solutions available by spending more on their research and development areas and try and take advantage in the market. Airbus have listened to the market and customer expectations and has been leveraging full capabilities to focus on the expectations and have been delivering effective solutions and recently they have launched “Services by Airbus” which serves the complete portfolio of end to end lifecycle of products and services. In 1995 Airbus was first in the airline industry to create operations for working with “lessors”. GE capital aviation services and International financial lease corporation were involved in this and the offer was such that they allowed them operate without the need for financing the fleet and also flexibility of add or remove capacity as required was provided to them. The “lessors” represent low risk customers for Airbus as they are less susceptible to loss to them due to their global presence.
The ministers from France, Germany and Britain met together in the year 1967 and decided to strengthen the European cooperation in the field of aviation technology and also wanted to promote economic and technological progress and advancements in Europe and they made a joint agreement in formation of Airbus corporation. The ministers then realized the need for joint programme or else the Europe would be left trailing behind in the wake of Americans who was looking to consolidate their supremacy in this sector and the Europeans would be left depending on the Americans for the new aircrafts. The joint agreement as a whole was realization of political dream in Europe but it was highly expensive to build and operate and catered relatively for few people. The Airbus company now as a whole with a 50 year track record has served its expectations and stood by its motto by delivering its products and services across globe.
Airbus business is based on some key partnerships and their focus on some below listed important activities and also their customer base is very strong around the globe built over the time with trust and loyalty from customers and their best in quality products and services and as well as long term contracts held with clients. It operates in around 180 locations around globe and has about 12000 direct suppliers globally.
KEY PARTNERSHIPS AND ALSO FINANCING PARTNERS KEY ACTIVITIES
European aeronautic space and defense company (EADS) Research and development specifically in electric propulsion system for cleaner aviation
British multinational aerospace company(BAE) Designs and manufacturing which are more unique and cutting edge in industry
European governments and aerospace and defense agencies in Europe Partnerships and alliances which helps Airbus expand more globally
Missile systems provider(MBDA) and major partner with Eurofighter consortiums Supply chain management of their products to the clients
ATR turboprop aircraft maker Growing industrial footprint (Holds record for highest number of Helicopters delivered to clients globally)
Safran launchers which manufactures specialized Ariane 6 launchers Investment in technological advancements
Global partnerships with technology incubators and also academic and research partnerships Continuous support from European governments over decades
Partnered with Honeywell and Jetblue recently to reduce pollution and dependence on oil Creating the brand awareness among the customers
Overview of the finances of Airbus
In an effort to analyze Airbus as sound investment opportunity or not we have performed analyzes on operations of Airbus as a whole going in depth into each and every sector in the company. We have performed a through financial statement analyzes of Airbus we evaluated their past years balance sheet and also their earnings made and also investigated their trend of allocation of their capital towards various activities across the company.
This involved reviewing income statements, cash flows and balance sheet for last five years and also we have made some conclusions with respect to their effective management of finances and margins as well. The EPS, revenue, income growth as well as the anticipated cash flow of the company is also calculated and the necessary findings are given.
The income statements evaluated reveals that there is a steady increase in the incomes generated going forward but there was huge slump in 2016 the net income was 995 million euros and it was -63% down compared to previous year 2015 even after EBIT adjustments one of the factors which affected was the negative impact of foreign exchange rates and as well as the heavy investments made based on the future prospective growth of the company.
The cash flow from the year 2014 has been increasing trend for the last five years without injection of cash flow the operations of the company in such type of industry would totally collapse because it is the industry which requires heavy investments into operations and development time to time.
The assets and liabilities of the company are well managed even though there was the huge slump in the year 2016 in revenues aspects there was huge order intake in the year 2016 which mounted the operational costs to drive higher and then when the operations were all scaled up it was smooth ride for Airbus. The balance sheet also reflects the effect of their effect of global presence which makes it easier to tackle and balance it with other regions revenue growth. The operational costs are much higher in this industry in Europe compared to the operational expenses of the same industry in American region.
EPS and Dividend growth
The dividend growth was steady even at the time when there was drop in revenue in the year 2016 the dividends were paid at a slightly higher rate than the previous year but the earnings per share dropped the same year because of the same negative impact on foreign exchange rates and also heavy order intake and as well it required reshaping of portfolio which was all done keeping in mind for delivering overall good performance in the year 2017. Airbus dividend policies demonstrated very strong commitment on returns for shareholders. The dividends policy targets about an average of 30% to 40% growth in the payout ratio. They also began implementing shares buyback policies in recent time keeping their long term vision in mind so the shares bought back will be distributed across to the beneficiaries who are in line with the same long term plan of the company and also believe in its growth and expansion in the future.
The operating income in the year 2016 was reduced for the fact that there was heavy order intake in the year 2016 and the operation costs were effectively managed and new intake of orders were reduced and the orders pending were all effectively completed for a change in the revenue aspects of the company.
SEPI, SOGEPA,GZBV are holding companies for French, German and Spanish governments respectively.
Research,aim and significance
The purpose of this study is to evaluate fair value price of the stock Airbus by conducting fundamental and other required necessary analysis by means of using basic financial models for obtaining the fair price value of the stock. The main aim is to evaluate whether Airbus stock is good investment option by comparing the fair price with its current price. The intrinsic value of the company is one of the a basic important factors taken into evaluating the fair price it served as reference in calculating and also as benchmark for comparing it with other stocks.
Furthermore the research we made can serve as guideline for stock evaluation and also as the guide for utilization of DCF method effectively for the investors and also it answers the questions that arise in the mind for investors before pumping money into stocks. Hence it answers basic questions such as what is the fair value of the stock? and how is the performance of the company for next 3 years? and as well as how is much is cost of capital for the company?.
Research structure and limitations
The research structure involves use of various financial models such as discounted cash flow model and as well as deeper evaluation into the financial statements and other available published financials and reports from the company. The evaluation process is very detail moving from the basic operations of the company to the revenues generated by the company and its growth in revenue compared with previous years and also estimating its growth value potential in the future which serves that whether this company is good investment option or not.
The limitations to the research are that these financial models used are the same used in the financial world for evaluating stocks and we combined various values in this process that involves lot of uncertainties and assumptions. The values we obtained are solely based on the published available facts on the internet. The calculated fair price is as assumption based on the available tools used to obtain them and investment should solely be not based out of these valuations in the future.