BBA Aviation falls short of 'lazy' estimates for full-year profit

5th Mar 2019 10:03

(Sharecast News) - Shares of BBA Aviation fell despite the company posting better-than-expected operating profits, although management did not provide any update on the anticipated sale of its Engine Repair and Overhaul unit, while net debt printed above some analysts' estimates.On a continuing basis, the aviation services outfit posted a 26.3% jump in its full-year 2018 revenues to reach $2.881bn, despite which profits before tax were roughly flat at $340.2m and 3.3% lower on an after tax basis at $216.3m for earnings per share of 23 cents.Top-line growth was bolstered by the purchase of EPIC, which contributed $292.5m to group sales, and by the acquisition of licenses by its Ontic unit and favourable exchange rate movements, which added another $12.3m.Commenting on the outlook, group chief Mark Johnstone, forecast "continued long-term structural growth in the Business an General Aviation flying activity", which would benefit its Signature division, which operates a Fixed Base Operations network spanning over 200 locations.Johnstone added that the outfit would continue expanding its offering of services."The Board is confident of continued outperformance against the US B&GA market in 2019 led by our strategic growth initiatives," he said.For Ontic, which provides equipment for the support of maturing and legacy aerospace platforms, Johnstone said the unit had a " strong pipeline of licence opportunities to help deliver our stated EBITDA target of $100 million by the end of 2021."Commenting on the outlook provided by Johnstone, analysts at Jefferies said it was "as expected" and "robust".Jefferies also pointed out that how their 2019 estimates had been slightly below "a lazy consensus" for profits before tax of $274m (Jefferies: $264m), with some top-end forecasts not having been updated for a while."Accordingly, we expect consensus (ex-IFRS16) to slip slightly, with the top-end moving lower, but the market should be expecting this."Organic revenues at Signature rose by 2.7% but underlying profit fell by that same amount to $320.6m on the back of $14.0m of IT spend.Meanwhile, at Ontic, underlying profits were ahead by 7.4% to $59.3m, thanks to license acquisitions, the company said in a statement.Group free cash flow was strong on a continuing basis, increasing by 16.9% to $258.6m, while total group FCF was up by 1.9% at $224.8m, while total group return on capital invested improved by 40 basis points to 11.4%.At period end, the company's net debt stood at $1,332m which was higher than the $1,301m that analysts at Jefferies had penciled-in.And regarding the sale of its ERO unit, management said: "we anticipate making a further announcement on the ERO disposal in due course."The final dividend payout was increased by 5% to 10.07 cents "reflecting continued confidence in the Group's future growth prospects and cash generation."Following the release of the company's latest financials, Jefferies stuck to a 'buy' recommendation and 290p target price for the company's shares. As 1159 GMT, shares of BBA Aviation were down by 5.12% to 241.0p.