Morgan Stanley upgrades BBA Aviation after recent underperformance

11th Aug 2015 14:35

(ShareCast News) - Morgan Stanley upgraded BBA Aviation to 'equalweight' from 'underweight' and raised the price target to 332p from 320p, saying the stock offers a more attractive risk/reward following recent underperformance.It noted the shares have fallen 10% since the 8 May trading statement and with consensus and Morgan Stanley forecasts now better aligned for 2015 and beyond, the bank has decided to upgrade its stance on the stock.MS said that in its note from 27 May, it had argued that better operational leverage to the recovery in business jet activity could lead to a more constructive view. This was in evidence in the first half results, albeit offset by one-off issues in Engine Repair & Overhaul, said the bank.Morgan Stanley said that BBA delivered 3% organic revenue growth and converted around 25% of this into profit growth, although the bank isn't expecting this to be as good in the second half, as BBA will no longer have the new NetJets agreement as a tailwind.The bank said BBA is the only listed company giving primary exposure to the business jet aviation market - where activity is still well below its peak - with around 80% of revenues generated in the US. It said the US business jet market was still around 12% below its 2007 peak in 2014, suggesting ample room for revenue and profit growth.At 1530 BST, BBA shares were up 1.6% at 313.10p.