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Analysts Sabina Levy and Ilya Piner from the investment house Leader Capital Markets mark Beit Shemesh Motors as one of the interesting stocks for the coming year. The stock made an upward move of more than 7% since the beginning of the year and more than 20% in the last year and forecasts for the rest of the year are optimistic.
“Last week, the Beit Shemesh Engines company announced the signing of an agreement with a government company of one of the European countries, for the purpose of providing maintenance services to the F100 engines and engine parts of the Air Force of that country, with market estimates being that the contract is part of the “Ukraine effect” , which brings many countries, in particular European countries, to increase their security expenditures and improve the level of maintenance of their aircraft.
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“The signed agreement is for a period of three years, with the company estimating that the consideration under the agreement will amount to about 30 million dollars, with a high probability of realization of up to an additional 10 million dollars for the duration of the agreement.
“This agreement joins another contract that the company announced at the end of 2022 with the Ministry of Defense of one of the Latin American countries, for the purpose of providing maintenance services for T700 engines and engine parts for a period of about four years, when the consideration in this agreement is expected to be about 17 million dollars, with An option for the parties to increase the services provided to the extent of approximately 26 million dollars.
“These agreements are essential to the company’s engine activity sector, which is usually not characterized by multi-year contracts, but by one-time engagements, this is in contrast to the company’s parts sector activity. Signing long-term agreements with customers is a significant anchor for the activity and improves the level of security regarding the company’s revenues In the coming years. Also, the geographical distribution of the clients is evidence of the company’s strong reputation in the industry, when, as we mentioned in our previous review of the company, the geopolitical and security events that are deafening in the world, are expected to continue to support the increase in demand for the services of the sector” write in Leader Capital Markets to their clients.
The last two agreements are expected to contribute between 14-20 million dollars to the revenues of the engine sector over the next three years, “In our estimation, the revenues will meet the upper threshold of the aforementioned range. This is a significant increase in sales in relation to the revenues of the engine activity, which in 2020-2021 amounted to approximately $37.7 million and approximately $32.8 million, respectively, which may be reflected in a high growth rate in 2023.
“Although the revenues of the engine sector constitute a relatively small share of the company’s total revenues of about 20%-25% (the company’s revenues in the last four quarters were about $160 million and before the outbreak of the corona virus about $170 million), but the profitability of the activity over the past years , was significantly higher compared to the activity of the parts sector, which constitutes the bulk of the company’s total revenues. In light of this, we estimate that the expected growth in the revenues of the parts sector in the coming years will be expressed, even more strongly, in the increase in the company’s profitability.”
“In addition to the expected increase in the activity of the engine sector,” the investment house says, “there are also encouraging signs in the engine parts sector, which is mainly related to developments in the commercial aviation market, which are expected to support strong demand for the company’s products in the coming years. The return of the aviation world to its pre-coronavirus activity levels will result in strong demand of the airlines to upgrade and purchase new planes, which are expected to increase the volume of demand for jet engine parts and Beit Shemesh Engine Company services.
“For example, last week the two largest aircraft manufacturers in the world, Boeing and Airbus, announced the recruitment of personnel on a significant scale, this to support the production of the new aircraft in light of the many demands and orders from the airlines. The Boeing company announced that it plans to recruit ten thousand workers in the year 2023, especially in the areas of engineering and production, in order to meet the growing demand of the airlines.
“The company announced that it plans to add an additional production line (fourth in number) in the second half of 2023 for MAX 737 aircraft in order to increase production output from approximately 31 aircraft per month to approximately 50 aircraft per month in the coming years, with the company emphasizing its significant backlog of orders for the coming years.
“In addition, the European aircraft manufacturer announced the expected recruitment of approximately 13,000 workers, this after a recruitment of a similar scale in 2022, when a large part of the jobs that are expected to be opened are new jobs. After the aforementioned recruitments, the scope of the aircraft manufacturers’ workforce is expected to even cross the The volumes that were in the companies in 2019, before the corona epidemic.”
From the direction of China there is also good news for Beit Shemesh engines “The policy change in China and its reopening to international travel are expected to increase global air traffic, while estimates in the aviation market even predict that the level of global traffic will return to the levels of 2019 already in the second half of the year 2023, this is in contrast to previous estimates that spoke of a return to pre-Corona levels only in 2024.
“Against the backdrop of the optimistic forecasts in the market, the CEO of AerCap, the largest aircraft rental company in the world, noted that all the airlines report strong customer demand, despite the economic slowdown, when according to him, the company signed aircraft rental contracts this year to a greater extent than at any time in its history, with 570 lease agreements, which will be provided to the airlines in 2023-2024.
“The increase in global air traffic, along with continued strong demand for flights, is expected to support the continued demand of airlines to increase their aircraft fleet and lead to an increase in demand for jet engines and engine parts in the years to come.
“The year 2023 marks a very positive year for the results of Beit Shemesh Motors, with a significant improvement in both the revenue line and the profit line, when the company may present record revenues this year. In our estimation, the signing of the latest agreements in the engine sector alongside the strong demand in the parts sector may support the company’s results and even lead to growth higher than our original forecast.
“An increase in the company’s results and the continuation of the positive trend in the business environment are expected, in our estimation, to lead to a further improvement in the sentiment of the market towards the company’s stock, which presented a return of about 7.6% since the beginning of the year and in the last year recorded a cumulative return of about 21%” concludes the investment house Leader Capital Markets .