September 6, 2018 / 5:21 AM / 19 days ago

UPDATE 3-Safran raises 2018 targets after solid H1, shares surge

* Safran H1 sales, profit beat forecasts

* Switch in factories to new jet engine model going as planned

* Shares hit record high (Updates with shares hitting record high, analysts’ note)

By Cyril Altmeyer

PARIS, Sept 6 (Reuters) - France’s Safran raised full-year forecasts after posting better-than-expected sales and profit in the first half on strong demand for spares and services, driving its shares to a record high.

The world’s third largest aerospace supplier said the switch in its factories to a new model of jet engine was going as planned. Safran added that the integration of cabins maker Zodiac Aerospace was also on track, and it had agreed to compensate Dassault Aviation for a cancelled engine order without disrupting its profit outlook.

Shares in the Paris-based company jumped more than 7 percent to 116.6 euros, an all-time high, before falling off a little. For the year to date, Safran stock is up 27 percent.

The company reported a 20.3 percent underlying rise in first-half recurring operating profit to 1.386 billion euros ($1.61 billion) on revenue which grew 10.1 percent to 9.506 billion. Analysts were on average expecting 1.249 billion euros of profit on revenue of 9.479 billion, according to a Reuters poll.

Safran predicted full-year growth of 20 percent in recurring operating income, compared with a previous forecast of close to 10 percent, and revenue up 7 percent to 9 percent compared with an earlier target of as much as 4 percent.

It firmed up its free cash flow goal, saying this would be “comfortably” above half its operating income.

Following the results, analysts at Bernstein said in a note they expected Safran to “outperform” with a target price of 136 euros a share, citing strong expectations for Safran’s LEAP aero engine.

SPARES AND SERVICES

Aerospace suppliers are responding to a surge in airplane orders in recent years to cope with rising travel demand.

Safran, which co-produces the world’s most sold series of jet engines with General Electric, said its widely watched civil aftermarket for spares and services grew 12.5 percent in the first half. It boosted its projection for full-year growth to 10-12 percent from “high single digits”.

The Safran-GE joint venture continues to experience delays of about 4 weeks in delivering the new LEAP engines for Airbus and Boeing jets. But Safran Chief Executive Philippe Petitcolin pledged to eliminate these delays by the end of the year.

For now, the delays have helped contain estimates for short-term losses from the switch over as the proportion of profitable current-generation deliveries, which are not saddled with the start-up costs of the newer model, remains larger than expected.

Safran’s results included a four-month contribution from Zodiac Aerospace, the seats manufacturer acquired by Safran after a production crisis cost the firm its independence.

Safran is pushing ahead with an industrial rescue plan for the business, which produced strong margins before its production lines failed to keep up with a flood of new orders.

“There are no good or bad surprises, but it remains a challenge,” Petitcolin said, adding that the turnaround was progressing in line with the parent company’s financial roadmap.

Zodiac has key operations in Britain, where Petitcolin said Safran was building up a buffer stock of parts to cope with any disruption from Britain’s decision to leave the European Union, mirroring moves by other groups including Airbus. ($1 = 0.8595 euros) (Reporting by Cyril Altmeyer, Editing by Tim Hepher, David Evans and Emelia Sithole-Matarise)

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