Desjardins : Target at 103$3Q23 recap—defying gravity
The Desjardins Takeaway
BBD reported strong 3Q results. Previewing BBD’s 2024 FCF guidance, we see a clear path to FCF >US$550m as the company should benefit from several structural cash tailwinds: ~US$100m capex reduction from Pearson, the roll-off of the US$125m RVG drag and ~US$70m from a basket of drivers (improved cost structure, higher G7500 margin, increased contribution from CPO and aftermarket, operational leverage from increased deliveries, and lower cash interest expense).
Highlights
Stronger-than-expected 3Q23 results. Total revenue came in at US$1,856m, above consensus of US$1,731m. Adjusted EBITDA was US$285m, above consensus of US $265m. Finally, FCF (investors’ main focus) of US$80m was better than consensus of US $51m.
2023 guidance reiterated—on track to exceed it once again. Management remains confident it can deliver (or even exceed) its guidance given continued positive bizjet market demand dynamics and a strong working capital reversal quarter coming in 4Q from the seasonal step-up in deliveries (we forecast +US$577m). We calculate that only 46 bookings are needed in 4Q to hit 1.0x for the year. We see low execution risk for 4Q as BBD continues to successfully mitigate supply chain risks. We forecast 56 deliveries and US$654m of FCF.
Leverage to fall below 4x by the end of 2023, which should attract incremental institutional interest. Given management has repeatedly stated that its liquidity comfort range for daily operations is US$1.0–1.5b, we conservatively estimate a US $380m debt paydown in 4Q. We currently forecast leverage falling to 3.4x by yearend. We note that institutional investors often use 4.0x leverage as a key threshold. We calculate 1.6x in 2025, which should drive an investment-grade rating.
Valuation
Increasing our target to C$103 (from C$99) as we tweak our estimates and account for the change in FX. Our target is based on an EV/EBITDA multiple of 8x on our 2024 EBITDA forecast of US$1,339m. We have adjusted our exchange rate to C$1.38/US$1 (from C$1.34/US$1) to account for the change in market rates.
Recommendation
Reiterating our bullish stance. We remain confident in management’s ability to meet (and potentially exceed) its 2025 targets