Airbus And Boeing Orders Will Fuel Sustainable Component Demand

Key Takeaways

• Transformation into a pure-play fluid and thermal management business, alongside strong balance sheet and buyback, enables bolder capital allocation, innovation, and improved returns.
  
• Strong positioning in clean transport, defense, and emissions-reducing technologies, with expanding customer base, supports outsized organic growth, high margins, and durable earnings quality.
  
• Heavy reliance on traditional markets and major aerospace clients, combined with rising costs and underinvestment in innovation, threatens future growth, profitability, and competitiveness.

Catalysts

Designs, manufactures, and sells high-technology components and systems for the original equipment manufacturers in the aerospace, defense, land vehicle, and power and energy markets in North America, the United Kingdom, South Africa, India, China, and internationally.

• Analyst consensus expects benefits from the sale of Aerostructures to improve margins and shareholder returns, but this may significantly understate the impact: transforming Senior into a pure-play fluid conveyance and thermal management business with a best-in-class balance sheet and £40 million buyback could spark a structural re-rating, drive ROCE to the upper end of management's 15 to 20 percent target, and enable bolder capital allocation for bolt-on acquisitions and innovation, sharply improving net margins and earnings per share.
  
• While analysts broadly recognize Spencer Aerospace's double-digit growth potential, they may be underestimating the multi-year runway and cross-divisional synergies as European market entry gathers pace; as Spencer unlocks large new customers and accelerates product adoption through Boeing and European OEM LTAs, Senior could see revenue and margin upside far in excess of current forecasts.
  
• Senior's 42 percent year-over-year growth in passenger vehicle Flexonics, well outpacing a five percent market, combined with its early leadership in battery and hybrid vehicle thermal management, positions the business to disproportionately capture surging demand as global clean transport adoption accelerates-setting the stage for both accelerated organic revenue growth and structurally higher division margins in coming years.
  
• The sharp ramp-up in global defense budgets and the company's growing presence on high-value platforms like the F-35 and next-generation military programs suggests Senior's defense segment is poised for outsized and resilient earnings growth, providing a counter-cyclical revenue stream that supports overall group earnings quality and stability.
  
• Senior's recognized technological leadership in efficiency and emissions-reducing components, reflected in multiple CDP 'A' ratings and a robust innovation pipeline, makes it a critical partner for OEMs focused on decarbonization and regulatory compliance-this technology moat is likely to increase market share, pricing power, and recurring revenue, fueling high-margin, durable long-term growth.

Senior Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Senior compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Senior's revenue will decrease by 7.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.2% today to 6.9% in 3 years time.
• The bullish analysts expect earnings to reach £53.7 million (and earnings per share of £0.13) by about August 2028, up from £31.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 26.8x on those 2028 earnings, up from 25.6x today. This future PE is greater than the current PE for the GB Aerospace & Defense industry at 24.7x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.47%, as per the Simply Wall St company report.

Senior Future Earnings Per Share Growth

Risks

• Senior's continued reliance on traditional aerospace and land vehicle markets leaves it exposed to the ongoing decarbonization and transition toward low
• and zero-emission transport, which may reduce long-term demand for conventional components and result in headwinds for group revenue growth.
  
• The company's overexposure to key aerospace customers such as Boeing and Airbus amplifies the risk from OEM order volatility and supply chain disruptions, leading to lumpy revenues and potential pressure on earnings should large customers rationalize their vendor base or delay orders.
  
• Senior's margins remain sensitive to input costs, as evidenced by only partial success in achieving pricing improvements with Tier-1 OEMs, raising the risk that continued inflation in raw materials or labor costs may not be fully passed through and could compress future net margins.
  
• While the sale of Aerostructures improves near-term balance sheet strength, it also concentrates Senior's business in fluid conveyance and thermal management where technological disruption from underinvestment in R&D or failure to keep pace with electrification trends could diminish competitive advantage and stifle long-term revenue and profitability.
  
• Ongoing deglobalization, shifting trade barriers, and persistent skilled labor shortages in core geographies threaten to increase wage bills and operational complexity, potentially eroding profitability and placing pressure on both net margins and longer-term earnings stability.

Valuation

• The assumed bullish price target for Senior is £2.75, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Senior's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £2.75, and the most bearish reporting a price target of just £1.85.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be £780.4 million, earnings will come to £53.7 million, and it would be trading on a PE ratio of 26.8x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of £1.96, the bullish analyst price target of £2.75 is 28.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.