Desjardins : conference chat summary2024 conference recap—climbing out of turbulence (published march 20)
The Desjardins Takeaway
At our Desjardins Montral Conference, we hosted a fireside chat with BBD President & CEO ric Martel as well as meetings with the company’s investor relations team. Management left a strong impression, with positive comments on the bizjet market environment, achieving its 2025 targets and capital deployment opportunities. The stock has a highly attractive valuation in our view, trading at 4.5x our EV/2025 EBITDA forecast, a 55% discount vs the peer average of 10.0x (ERJ, GD, TXT, AM).
Highlights
Large-cabin segment and European market have outperformed expectations in 1Q. Management stated that in 1Q to date, the bizjet market has remained extremely robust with surprisingly strong demand/interest from European and large-cabin customers. For fleet operators (~2025% of BBD backlog), BBD aircraft flight hours remain 50%+ above 2019 levels.
Management reiterated its confidence in achieving 2025 targets and its belief that the market reaction post 4Q was exaggerated. Nothing has changed for 2025, with BBD stating that it is well on its way to achieving its targets; this should provide incremental upside as the Street is taking a more conservative stance (EBITDA margin of 17.2% and FCF of US$821m vs target of ~18% and US$900m+, respectively).
Management indicated its surprise at the negative market reaction post 4Q results given the working capital requirements that are impacting 2024 FCF generation are temporary.
Management does not feel pressure to begin working on a new clean sheet design once the leverage target is achieved. In terms of capital deployment post 2025, management placed heightened interest in a potential current-platform refresh (not a material investment vs clean sheet) given the success achieved with the Challenger 3500 (does not necessarily need to invest in expensive new engines or wings as the interior is the key selling factor). Management emphasized discipline and creating value for shareholders when selecting capital deployment opportunities as it reaches a leverage ratio of 2.02.5x.
Valuation
Maintaining our C$96 target. Our target is based on an EV/EBITDA multiple of 8.25x on our 2024 EBITDA forecast of US$1,308m. We assume an exchange rate of C$1.35/US$1.
Recommendation
Reiterating our bullish stance. We believe management is well on track with its key strategic initiatives to expand margins and revenue as it reduces debt.