As usual from Desjardins, a very thoughtful opinion
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Bombardier Inc. Rating: Buy, Risk: Above-average, Target: C$80.00
Investor call recap—fed up with waiting at the airport? Summer doesn’t look catastrophic on the bizjet side
The Desjardins Takeaway: Positive
Today, we hosted a virtual meeting with Bombardier Executive Vice-President & CFO Bart Demosky and
Vice-President, Financial Planning & Investor Relations Francis Richer de La Fleche, which provided an
excellent opportunity for an update on the business jet market environment.
Management’s recent actions to reduce debt have been very encouraging. BBD recently announced
that it will buy three series of its outstanding senior notes for a total of US$373m in cash, above
the initially planned amount of US$350m. Assuming US$373m at 7.50%, this represents US$28m of
additional interest savings per year—US$0.23 of EPS accretion on our 2023 numbers. Removing US
$373m of net debt in 2023, this would represent ~C$5/share of value creation on our C$80 target price
(our target is derived from a 9.25x EV/EBITDA multiple on our 2023 numbers).
Since the start of 2022, Bombardier has repaid more than US$750m of debt, resulting in almost US$60m
of incremental savings per year. This puts the company ahead of where it anticipated it would be after
18 months as a standalone bizjet business. We do not believe these actions will slow down anytime
soon as there is an extra US$400m in cash coming from Alstom on January 29, 2023; Mr Demosky also
indicated that the company is looking at additional avenues to speed up this process further.
In relation to the current state of the bizjet market, Mr Demosky stated that demand is still very strong,
with order activity this quarter similar to that in 1Q. He also noted that other metrics such as flight hours
for its fleet as well as pre-owned bizjet inventory are showing no signs of weakness (still growing yearover-
year). In terms of backlog quality, Bombardier is much better placed vs during the Great Financial
Crisis in 200809; it has the strongest backlog in its history and more than two years of production
for some models, providing high visibility. Management has been disciplined in terms of improving the
cash collection cycle, with every aircraft now having a sizeable upfront deposit on top of liquidated
damages for cancellations.
Despite strong fundamentals for the bizjet industry and the above-noted positive company
developments (eg debt repayment, five-year labour agreement, NCIB program), the stock is trading at
a ~40% discount vs peers (GD, TXT, ERJ and AM) on an EV/EBITDA FY1 basis, which is unjustified in our
view. We believe that management is well on track to meet or even exceed 2025 targets with its key
margin and revenue expansion strategic initiatives.
JUNE 30, 2022