RE:Nat bank fin : Investor Day TakeawaysThose guys are good they got it we finished at 0.70. now they have to make an other big text like that for monday at 0.75.....lol.
lb1temporary wrote:
2025 targets laid out
Bombardier held its investor day today at which management outlined 2025 financial objectives including revenue of ~$7.5 billion (from $5.6 billion in business aircraft revenues in 2020), adjusted EBITDA of ~$1.5 billion (from $200 million in 2020) for an EBITDA margin of ~20%. In addition, Bombardier expects to turn free cash flow positive in 2022 (versus a usage of no more than $500 million in 2021) and generate more than $500 million in FCF in 2025.
Our key takeways:
Margin target looks achievable
In a recent research note, we highlighted that based on the company's cost reduction plan and expected improvements in profitability for the Global 7500 program, a run-rate EBITDA margin in the high-teens and free cash flow of $400-500 million could be achievable. Bombardier's 2025 target for a 20% EBITDA margin is even better than our rough assumption and is supported by the following:
Global 7500 learning curve cost improvements. Global 7500 deliveries are currently a major drag on margins as the program is still in the early stages of production with each delivery losing money. However, the program is on the cusp of turning profitable as Bombardier expects to achieve a 20% reduction in unit cost between the 50th and 100th jet delivery and the company is nearing its 50th delivery. Importantly, Bombardier is currently building the 89th Global 7500 and its production slots for the aircraft are sold out through 2023, so it has good visibility on these projected cost savings. We believe the Global 7500 will ultimately be a mid-to-high teens EBIT margin aircraft once fully down the learning curve, so this program is the biggest driver of margin expansion.
Cost reduction program. As previously outlined, Bombardier expects to achieve $400 million in recurring savings by 2023, which will be achieved through a combination of labor productivity improvements (including a ~1,000 FTE reduction) which will contribute $150 million in annual savings, a 10% reduction in corporate and indirect costs which will generate $125 million in annual savings, a 30% reduction in its manufacturing footprint, which will generate $50 million in savings and the balance of $75 million in savings currently under development. There is also good visibility on the cost savings from these initiatives.
Growth in higher margin aftermarket. Bombardier intends to diversify its revenue mix by growing its higher margin (and less volatile cash flow) aftermarket from ~$1.0 billion in revenue in 2020 (or ~18% of total revenue) to $2.0 billion in 2025 (making up ~27% of revenues). This goal implies that the company will capture about 50% of the potential aftermarket on the installed base of ~5,000 Bombardier-built jets, up from 38% in 2019. Bombardier is well down the path to expanding its support network having announced several major expansions or new service centers over the past year.
Bombardier's 2025 plan only assumes a modest recovery to "normal" for business jet deliveries including steady Global 7500 jets of 35-40/year. There could be upside if new jet demand is more robust
Deleveraging a major priority
Bombardier will be deploying the cash proceeds from the sale of Transportation towards debt reduction in the coming quarters with a focus on repaying nearer-maturity debt. This will drive at least $250 million in interest cost savings by 2025 (from a run-rate of under $800 million in 2020) with further reductions in debt as free cash flow turns positive in 2022 and beyond. The good news is that capex is expected to remain relatively low at ~$200 million for a multi-year period. This is due to the fact that Bombardier has a relatively refreshed aircraft lineup having made significant investments over the past five years. At the end of 2025, Bombardier projects leverage at 3x, but we believe the business should probably be closer to 2x leverage, so debt reduction will likely remain a priority beyond 2025.
Maintain Sector Perform; target remains $0.70
We maintain our Sector Perform rating on Bombardier shares. Management's 2025 targets look achievable, but we expect that the market will need to see steady progress on margins and free cash flow improvement before giving the company the benefit of the doubt. That said, if the company does deliver, a fair value for the stock in a few years could be closer to $2.00+, so there is potentially meaningful upside from today's share price.
We value Bombardier using an 8.0x EV/EBITDA multiple applied to our 2022 forecast. Our target remains unchanged at $0.70.