Safran: Implications of the new Capex guide

Safran's Q3 triggered the worst trading day since Covid. Two issues raised concerns among investors: the sequential deceleration in aftermarket growth and the surprise capex increase. Capex increased to 6% of sales. During the earnings call, Safran's CEO said that capex would be above 6% of sales each and every year. The market immediately interpreted the target as a like-for-like guidance increase versus 4% previously, and the implied cut to FCF pushed the shares down 10%. The new target is not like-for-like: it targets capex at 6% of revenue on average over 2027-2029, including tangible and intangible and excluding capitalised R&D, versus the previous 4% tangible-only guidance over 2024-28. It implies EUR 700M of incremental capex in 2027, or 1.6% of sales, and therefore triggered FCF cuts of over 10%. Bernstein views the capex hike as good news given Safran's strong ROIC, which is expected to rise from 24% in 2025 to 40% by 2030, well above WACC; what pushed the shares down was the