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Cash Collect on the aerospace sector

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Despite the backlash suffered due to the pandemic and geopolitical turbulence, the aeronautical sector maintains a certain tonicity and thanks to the recovery of tourism, in 2022 it managed to reduce the loss recorded in the two-year period 2020-2021. According to the latest estimates, the aerospace and defense market in the last year stood at around 750 billion dollars and is expected to reach $1.05 trillion in 2026with compound annual growth of around 8.5% and continued earnings growth over the next 5 years.

These more than optimistic prospects are driven not only by the restart of travel, but also by the recovery of aircraft orders by airlines, which has been demonstrated by the recent quarterly reports, which also highlighted a substantial improvement of the financial position of many companies in the sector.

To that effect, both Airbus and Boeing reported in the recent quarterly strong increases in orders for 2022 and this trend is expected to continue into 2023. In 2022, Airbus delivered 661 aircraft and received orders for 820 new aircraft, while Boeing delivered 480 and received 774 new orders. This momentum in the sector is increasingly contributing to the development of new and innovative technologies that could lead to real revolutions in business models, which are increasingly green and digital.

Increasingly sustainable and digital travel

However, there is no shortage of challenges for the sector which, like others, is penalized by continuous interruptions in the supply chain, rising prices, as well as a lack of qualified personnel. From this point of view, it is important to underline how the demand for travel by passengers is correlated to ticket prices, which in turn depend on fuel costs. Thus the latter factor is decisive for the tourism aviation sector and a sudden drop in fuel prices could further increase traffic, while reducing the volatility of the entire market at the same time.

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To meet this challenge, major aircraft manufacturers, including Boeing and Airbus, are investing heavily in research and development in order to design and build more efficient aircraft and engines also from the point of view of fuel consumption, reducing emissions and at the same time reducing operating costs.

But not only that, there is no shortage of technological innovations in the sector, with aircraft manufacturers increasingly using theartificial intelligence to improve aircraft quality and safety, optimizing costs and production processes. An example in this direction is that of Boeing which recently designed machine learning algorithms to help engineers design aircraft and automate factory operations.

Quarterly coupon of 3.30% with memory effect

To exploit the potential of the aerospace sector, within the range of BNP Paribas certificates we find the Memory Cash Collect (ISIN NLBNPIT1LT14) on the basket formed by Boeing, Airbus e Safran. The product offers a quarterly bonus with a memory effect of 3.30 euros (equal to 13.20% per year). To collect the coupon it is sufficient that all the shares in the basket are equal to or higher than the Premium Barrier level. In particular, this BNP Paribas issue is characterized by the coincidence between the value of the Premium Barrier and the value of the Maturity Barrier, both set at 60% of the initial value of the underlyings.

Furthermore, starting from the second trimester of life, thememory effect which allows the investor to receive, on a valuation date, a cumulative premium including all previously unpaid coupons, if on that valuation date the conditions for receiving the premium are met. From July 2023 onwards, if on the quarterly valuation dates all the shares in the basket trade at a value equal to or greater than their initial value, the certificates expire in advance. In this case the investor receives the nominal value (100 euros), the quarterly premium (3.30 euros) and also any previously unpaid coupons.

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If the certificates do not expire in advance and reach expiry (January 17, 2025) they are offered instead two possible scenarios. In the first case, if the quotation of all the shares is equal to or higher than the Maturity Barrier level (60% of the initial value), the product repays the nominal value plus the premium with memory effect. Otherwise, if the quotation of at least one of the underlyings is lower than 60% of the initial value, the certificate pays an amount commensurate with the performance of the worst stock in the basket (with consequent partial or total loss of the invested capital).

Analysts prefer Buys with generous target prices

The consensus on the three stocks of the basket collected by Bloomberg, which we report in the table below, is substantially positive. Almost all analysts recommend the purchase (buy) with a minority suggesting keeping the shares in the portfolio (hold) and the almost absence of selling (sell). Furthermore, the 12-month average target price indicates that these are currently stocks appear underpriced and from which analysts expect potential upsides.

This type of underlying is therefore ideal in a certificate such as the Memory Cash Collect which relies on the growth or laterality of certain securities to obtain an attractive yield at the time of early maturity. Furthermore, the basket in question is of the “Worst Of” type and made up of companies belonging to the same economic sector. It is therefore about highly correlated and less risky stocks if included in a basket of this type. The concept seems to be counterintuitive but lies in the fact that securities of the same sector and highly correlated with each other are less likely than de-correlated ones to see an underlying of the basket take the “wrong” path, taking with it the overall performance of the certificate. In choosing the certificates, therefore, careful analysis of the underlyings is essential for the success of the investment.

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WARNING

This publication has been prepared by T-Finance business unit of T-Mediahouse Srl (the Publisher), with registered office in Viale Sarca, 336 (building sixteen), 20126, Milan, in complete autonomy and therefore exclusively reflects the opinions and Editor’s ratings. The information and opinions contained in this publication have been obtained or extracted from sources believed by the Publisher to be reliable; however, the Publisher makes no representations or warranties as to their accuracy, adequacy or completeness. BNP Paribas and the companies of the BNP Paribas group assume no responsibility for its content. Scenarios, calculation assumptions, data and past performance, estimated prices, examples of potential revenues or evaluations are for illustrative/informative purposes only, with no guarantee that such scenarios or potential revenues will occur or be achieved. In any case, the Publisher is not responsible for any loss or damage, direct or indirect, which may arise from the use of the contents of this publication.

For information on T-Finance business unit of T-Mediahouse Srl, as producer of the recommendations, on the presentation of the recommendations and on the positions and conflicts of interest of the producer, please click on this link.

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