RBC: Extracts from the full reportNote from tempo 1 : The RBC analyst have been change. The bull position unchanged. A long 20 pages analysis have been published; there is some extracts:
Strong FCF conversion next year implies a 17% FCF yield off current share price.
We expect net income to increase significantly in 2024 and 2025 and provide a solid base for what we see as a meaningful upcoming inflection in FCF. With deprecation levels steady and net working capital as well as capex requirements stable in our view over the next two years, we expect Bombardier to drive FCF conversion >100% in 2025 (see Exhibit 2). Key is that our 2025 FCF estimate of $916MM (versus guidance of >$900MM) implies a 17% FCF yield and is the main driver of our positive investment thesis on the shares. As we discuss in more detail below, we view the near-term demand backdrop as supportive of Bombardier achieving these near-term targets.
Note from Tempo1 : I can’t copy exibits; so, I will describe them: From the 2023 net income of 490 M$ he add revenues (+99), larger margin (+252), less interest (+78), more costs (-55) for a better net income of 866M$ in 2025. Starting from this point (866 M$) , he add depreciation ( + 465 ), increase the working capital needs ( -115), and add Capex (-300) to end with a 916 M$ FCF for 2025.
About Service:
…For example, we estimate Gulfsteam conducts 70-80% of its aircraft servicing, which points to greater potential upside to Bombardier’s 50% target by 2025. Looked at another way, Gulfstream’s 2023 service revenue per aircraft was $950K compared to BBD’s $350K, illustrating room for growth given BBD’s much larger 5K installed base (vs 3K at Gulfstream).
About Eric Martel:
In our view, the key is the board tapped Eric Martel to head the newly restructured company, who was the former president of Bombardier Business Aircraft, and oversaw both the Challenger and Global programs as well as Bombardier Aerospace Services during his time with the company from 2002 to 2015. This gives us confidence in Bombardier’s ability to execute on its strategic targets longer-term as we hold Mr. Martel in high regard, given his industry and operational understanding. With a focus on business jets, services growth, and expansion into new segments, we believe the new company is better focused and has emerged stronger from its past. We expect that over time, this will drive a re-rate in the company’s shares closer to in line with peers as we think investors will stop focusing on the company’s checkered past and instead focus on solid current execution and a robust outlook.
About Execution
Impressive execution to date. Since releasing its long-term growth plan during its Investor Day in early 2021, the company has exceeded near-term guidance figures, and subsequently increased 2025 targets in early 2023 (see Exhibit 11). The company's focus on large long-range jets, services build-out, and the Challenger 3500 refresh has translated into solid EBITDA growth and margin expansion,
About a 2030 target ??
2030 upside potential. Factoring in the new growth drivers in CPO and Defense as well as steady services growth, we see line of sight to ~$13B in revenue, $2.6B in EBITDA and $1.2B in FCF by 2030E, inclusive of a major ramp of a $2B clean sheet program to 2030E. We see Defense and CPO contributing $1B in incremental revenue and services growing at a 5% CAGR from 2025-2030E. While our out-year targets are less certain and come with a higher degree of risk, we note this upside scenario provides an indication of what we think the company could look like by 2030 should it continue the trend of solid execution. Key is that we estimate execution in line with our out-year targets would represent roughly a 300% potential return versus current share price levels.
Upside scenario valuation Upside valuation of $244 (+339% implied return) reflects the execution on 2025 targets and new opportunities out to 2030. Our upside valuation of $244 incorporates new revenue opportunities from Defense and CPO materializing by the decade's end, providing $2B of combined revenue contribution. Along with steady services revenue growth we expect total revenue growth of +7% CAGR from 2025-2030. In our upside scenario, we forecast margin expansion to 20% by 2030 and incorporate the ramp up of clean sheet capex from 2027-2030 of $2B. Net-net this translates into $13B in revenue, $2.6B in EBITDA, and $1.2B in FCF by 2030.