Safran Believes It Can Offset Inflationary Cost Pressures; Shares Undervalued

The key theme from wide-moat Safran’s first-quarter 2022 sales update remains inflation and supply chain disruptions, exacerbated by the Russia-Ukraine conflict. The group suspended operations in Russia, which will have a 2% impact on sales and an estimated 70-basis-point margin headwind. Additionally, raw material and energy cost inflation will have an 80-basis-point impact on group margins. Management believes further cost savings will be sufficient to offset the 150-basis-point impact and maintains previous full-year 2022 margin guidance of 13%. Safran, which sources 50% of its titanium from Russia, has secured supplies for 2022 and is looking at alternative suppliers in future. Shifting supply chains for certified cast parts is complicated and we believe the inflationary effects could last beyond the current year. We make no changes to our EUR 150 fair value estimate and shares remain attractive for this wide-moat company.