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Senior left crippled as Barclays downgrades on Boeing Max 737 production fears

Barclays expects an inventory build since the planes were grounded and production cut, which means it will take a while for deliveries to ramp back up to normal levels

boeing 737 max
The US-China trade war is not helping either, says Barclays

Senior PLC (LON:SNR) has been left crippled by a stinging downgrade from Barclays, sending shares in the engineer plunging by more than 10%.

Analysts have downgraded the FTSE 250 company, which makes various sensors and systems for aeroplanes, to ‘equal weight’ and slashed their price target to 210p, citing Senior’s exposure to Boeing’s 737 Max troubles.

READ: Senior warns of margin hit after Boeing production cuts

Not only does it supply Boeing directly with parts for the 737 Max, but Senior also has a deal with Spirit AeroSystems, which makes the fuselage for the plane.

In response to the well-publicised safety issues, Boeing has cut production to 42 Max’s a month, but according to Barclays, Spirit suppliers are still knocking out parts for 57 planes each month.

“Senior has the highest exposure to the programme in our coverage universe (25% FY19 group sales, pre-rate cuts),” said analysts in a research note.

“Since the 13/3 grounding, Spirit suppliers have continued to produce above rate (57/month vs Boeing’s cut to 42), which has generated significant inventory build.

“We think the required backlog burn when deliveries recommence globally will temper the pace of production returning to full rate (we assume not before FY21) – a key issue overlooked by the market, in our view.”

Forecasts slashed

Barclays does, however, expect Senior’s Max production to fall to a Boeing/ Spirit blended rate of 47 planes per month shortly, which will dent sales this year and next.

As a result, the chin scratchers have cut their sales forecasts for 2019 and 2020 by £8mln and £35mln, respectively. They have also lowered their 2020 Aerospace margin target due to overhead cost absorption.

“We expect this to be the fourth consecutive year Senior has failed to deliver late-cycle, material Aerospace margin progression–a long-standing bear point.

“On our revised numbers, we are 180bps below the FY21 margin target of 13-14% which now appears unachievable, in our view.”

Senior shares were down 10.5% to 206.6p in early-afternoon trading on Thursday.

Quick facts: Senior PLC

Price: 58.85 GBX

Market: LSE
Market Cap: £2.5 m

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