Source: Sharecast
Berenberg said its upgrade was a result of "more favourable fleet dynamics" to 2035 and the "significant operational improvement" underway in the group.
The German bank said free cash flow generation will be supported by an increasing share of engines that sit within the cash-without-cost age bracket to 2035, according to its estimates.
However, Berenberg noted that time and materials headwinds from a declining portion of engines in service that were above 20 years old would be a partial offset.
"We forecast an 8.8% CAGR in engine retirements over 2025-35. This contributes to a decline in the proportion of engines aged over 20 years from c21% in 2024 to c12% in 2035. The 20-years-plus age bracket is a profitable off-LTSA (long-term service agreement) period towards the end of an engine's life, and this therefore represents a profitability headwind over the period, in our view," Berenberg said.
Berenberg estimates the company's in-service engine fleet compound annual growth rate to 2044 will increase by up to 260 basis points if it gains share on the next-generation single-aisle programmes.
"The shares trade on 2027 P/E of 31x and an FCF yield of 4.4% – a level that offers limited scope for a further re-rating, in our view," added Berenberg.
Reporting by Iain Gilbert at Sharecast.com
