Post by
Tempo1 on Apr 26, 2024 3:31pm
RBC: Reiterate BBD as our top idea
Meaningful uptick in book-to-bill and backlog provide favourable backdrop to hit 2025 targets
Our view:
Key for us from Q1 results was a significant uptick in
Bombardier's book-to-bill and order backlog, with mgmt flagging increased
Global demand as the primary driver. We see this as providing a very
favourable operating backdrop for the company to execute on its 2025
targets, which are key to our very positive investment thesis on the shares.
Margin also came in well above expectations, which suggests upside to
2025 targets and give us increased confidence that a much higher run-rate
margin is achievable. On our call back with mgmt, we discussed working
capital and margin cadence. Highlights below:
Key points:
• Q1/24 results. EBITDA of $205MM came in below consensus
expectations of $223MM (RBC: $234MM) and was down 3% Y/Y on
the back of two less deliveries offset by increased aftermarket services
revenues (+13% y/y). Margins expanded 140bps Y/Y to 16% underpinned
by greater services contribution and higher pricing. FCF usage of -
$387MM came in below consensus of -$356MM due to working capital
build on the production ramp.
• Book-to-bill and backlog increase driven by higher Global demand.
The main focus from the call was the company's book to-bill that came
in at 1.6x and a $700MM increase in the backlog to $14.9B, which
was primarily driven by Global demand as we note the $ book to-bill
is therefore closer to 2x. Overall, we view this as giving Bombardier
operational predictability and gives us a lot more confidence in the
company's ability to achieve its 2025 targets, which are key to our very
positive investment thesis on the shares.
• Margins came in strong in Q1. Another important positive from the
quarter was solid margin performance, which gives us more conviction
that a much higher run-rate margin is achievable. While this was in part
driven by services mix, we note that it came despite higher Challenger
deliveries. Looking ahead, we expect increasing Global deliveries (which
were a big driver of today's backlog increase) and an improving supply
chain (in line with commentary from General Dynamics yesterday) as
drivers of better margins in line with the company's 2025 targets.
• FCF to be weighted to Q4. In line with our prior expectations,
management noted on the conference call that FCF will be weighted
to Q4. Management expects inventory investment during the first three
quarters to be followed by a meaningful working capital release in Q4,
largely in line with our prior expectations.
Estimates and PT unchanged. We are not making any changes to our core
assumptions as we expect the lower deliveries in Q1 will be offset in Q2-
Q4 as the company ramps production. We are more confident in our 2025
estimates reflecting improvement in the backlog and see upside to 2025
targets on margin. PT unchanged at $95. Reiterate BBD as our top idea