Slump in BBA Aviation shares is good entry point, says Citi

Citigroup initiated coverage of BBA Aviation at ‘buy’ with a 210p price target, noting the shares have dropped 19% since 1 July 2015.

The bank said the fall provides investors with an attractive entry point, with completion of the Landmark acquisition in early 2016 a primary catalyst.

BBA announced the acquisition of US aircraft services and private jet hire company Landmark for £1.3bn in September.

“Landmark will grow BBA's Signature network by more than 75% in North America and reinforce its market dominance,” it said.

Citi estimates Landmark is 11% accretive to earnings per share and over 20% accretive including cash tax benefits.

The bank noted that BBA trades at 10.5x 2015e pro-forma price-to-earnings, inclusive of cost and tax synergies.

The company is due to report its 2015 results on 3 March and Citi is around 10% below consensus as a result of flat US business jet activity and one-off disruptions in the smaller divisions.

“However, we forecast earnings rebounding in 2016e/2017e as US economic conditions are supportive of a recovery in business jet demand.”

At 1222 GMT, BBA shares were down 1.4% to 179.80p.