Volume is a nothingburger, ignore and move aheadjust a bit more than average, nothing to see here on the path to 85. Takeaway: FCF is expected to accelerate further beyond 2023. we expect BBD to be in a position to increase its 2025 objectives at the upcoming investor day on March 23.
Rating: Buy, Risk: Above-average, Target: C$82.00 BBD.B C$68.08, TSX 4Q22 results—moderate 2023 guidance introduced; 2025 objectives likely to be revisited in March The Desjardins Takeaway: Neutral BBD officially released its full 4Q22 results this morning. Total revenue came in at US$2,655m, above consensus of US$2,626m. Adjusted EBITDA was US$352m (13.3% margin), above consensus of US $351m, and adjusted EBIT was US$211m (7.9% margin), also above consensus of US$210m. Finally, FCF (investors’ main focus) of US$169m was higher than consensus of US$164m, driven by the strongerthan-expected deliveries in the quarter. More importantly, management introduced 2023 guidance. It expects revenue to be >US$7.6b (we expected US$7.4b; consensus US$7.7b). From a profitability standpoint, adjusted EBITDA is expected to be >US$1,125m (we expected US$1,190m; consensus US$1,166m) while adjusted EBIT is expected to be >US$695m (we expected US$693m; consensus US$716m). FCF is expected to be better than US $250m, which we view as conservative (we expected US$425m; consensus US$465m). Bizjet deliveries are expected to be >138 units in 2023 (we expected 139; consensus 141). BBD reduced debt by US$209m in 4Q through cash on the balance sheet, which brings year-to-date total debt repayment to US$1.1b. Adjusted net debt/TTM EBITDA came in at 4.6x, down from 5.5x last quarter (we expected 5.3x). As of December 31, pro forma liquidity was ~US$1.9b and pro forma net debt was ~US$4.3b. Moody’s July upgrade report for BBD stated that a financial leverage ratio below 6.0x (using gross debt) and sustainable FCF could lead to an additional rating upgrade. Using this method of calculation, we estimate BBD ended the year at 6.4x—on the path to a rating upgrade in 1H23. We expect a neutral reaction at first glance given the conservative 2023 FCF guidance (likely to be revised upward through the year in our view, similar to 2022). We expect the two FCF headwinds of RVG payments (US$125m in 2023, up US$80m vs 2022) and capex to increase as the company completes the Pearson facility (US$350m in 2023; we expected US$316m), so FCF is expected to accelerate further beyond 2023. Additionally, we expect BBD to be in a position to increase its 2025 objectives at the upcoming investor day on March 23. The conference call is at 8am EST (dial-in 888-396-8049).