An hidden good new (read the highlight)Flash note just published
TD: Closing of BT Transaction As Expected, But With Lower Price
Event
This morning, Bombardier announced that its previously-announced sale of its Transportation business to Alstom has closed. The net proceeds to Bombardier are approximately US$3.6 billion, down from prior guidance and expectations for US$4.0 billion.
Impact: SLIGHTLY NEGATIVE
Although the actual completion of the transaction on the expected date is slightly positive, we believe that the lower-than-expected proceeds lead to a net impact that is slightly negative. The net proceeds were lower than previous estimates due to Transportation's lower-than-expected cash flow in Q4 due in part to unfavourable market conditions, as well as disagreements between Bombardier and Alstom as to certain adjustments which Bombardier intends to challenge.
Pro-forma net debt as at Q4/20 is approximately $4.7 billion, compared to our comparable estimate of $4.5 billion. After accounting for the lower transaction proceeds, the pro-forma net debt implies slightly better cash flow in Q4/20 than we had forecast. The $200 million of higher net debt equates to $0.08/share. As previously-indicated, proceeds will be used to pay down debt.
The closing of the transaction marks the start of Bombardier as a stand-alone business aircraft OEM. We believe that Bombardier's business jet franchise is strong, and has the potential to lead to share price upside if the company is able to reduce financial leverage beyond the sale of Transportation. Our current forecasts are for net debt to improve to $3.8 billion at the end of 2021, and remain in the $3.8-4.5 billion range throughout our forecast horizon. This still implies significant leverage relative to EBITDA and FCF, a fact that we believe will weigh on valuation multiples. If the company can improve margins to higher than our risk-adjusted assumptions, limit capex over the medium-term, reduce interest costs, and manage working capital, we believe that greater-than-forecast deleveraging is likely and significant long-term share price upside is possible