BBD Q1/24 Preview
Results on April 25 before market open, followed by earnings call at 8:00 am ET (1-888-259-6580).
Stock is +34% since last earnings (early February) and +12% YTD. However, EV/EBITDA valuation remains quite attractive at just 6.8x / 5.3x on our 2024E / 2025E vs. closest comps (GD and TXT) at 12.8x 2024E / 11.8x 2025E (on consensus) and BBD’s pre-pandemic average of 10x (albeit not too comparable due to different business mix). Our thesis on margin expansion and balance sheet deleveraging continues to play out, while the top-line growth story has recently improved with BBD raising its production rate earlier than we had expected. That said, we have low expectations from Q1 given management had cautioned on wider FCF usage vs. last year and our understanding that delivery mix was more skewed toward Challenger jets than we were previously anticipating. Thus, there is some risk that the stock could trade sideways on earnings day if EBITDA and FCF fail to impress the Street. However, we would take advantage of any weakness as the company could potentially raise some 2025 targets at the upcoming investor day on May 1, while extending the market’s visibility into 2026 or 2027.
We are maintaining our Q1 FCF estimate of -US$450M (last year -US$247M), while trimming our revenue and EBITDA estimates to US$1.45B (flat y/y) and US$212M (flat y/y), which are slightly more conservative than the Street’s -US$432M, US$1.52B, and US$231M, respectively. Our revised EBITDA and EBIT margin estimates of 14.6% (flat y/y) and 9.2% (-30 bp y/y) are also more conservative than consensus of 15.1% and 9.8%, respectively. We continue to expect 22 deliveries in Q1 (flat y/y; Street 23), however, we believe the delivery mix could be more skewed to Challenger jets this quarter vs. last year, which caused us to revise our revenue and margin assumptions. We kept our aftermarket services revenue estimate intact at US$475M (+12% y/y; Street US$471M). As a reminder, management noted on the last earnings call (February) that this year’s delivery and FCF profile should be similar to 2023. The company also indicated that Q1 FCF usage could be greater y/y to support y/y growth in deliveries beyond Q1 (mostly 2H) and due to ongoing supply chain disruptions. We expect the unit book:bill to remain relatively steady at ~1.0x vs. 0.9x last year and 0.9x last quarter.
For the full year, although we have slightly trimmed our expectations, we remain comfortable with guidance ranges for revenue (US$8.4B to US$8.6B), EBITDA (US$1.30B to US$1.35B), EBIT (US$850M to US$900M), and FCF (US$100M to US$400M). However, we continue to be conservative on 2025E EBITDA, margin and FCF vs. guidance (>US$1.625B, 18.0% and >US$900M, respectively) due to the ongoing macro uncertainties, while we are slightly more optimistic on 2025E aftermarket services revenue (guidance ~US$2.0B) and in line on leverage ratio (guidance 2.0x-2.5x). At the upcoming investor day on May 1, we see potential for 2025 guidance updates (particularly deliveries and revenue) and debut guidance for 2026 or 2027. While we continue to model US$600M capex in 2026E vs. US$290M/year in 2024E/2025E, assuming new product developments, we see potential for a positive surprise as management could be more inclined toward model upgrades vs. a clean-sheet design (i.e., capital intensity could be lower than our expectations in 2026E).
Balance sheet continues to make solid progress toward management’s leverage ratio target of 2.0x-2.5x by the end of 2025. The company ended 2023 at 3.3x vs. 4.6x at end-2022, which we see further improving to 2.9x by end-2024 and 2.1x by end-2025. BBD recently announced a partial redemption of up to US$750M of 2026/2027 debt maturities (out of the combined US$2.7B outstanding), funded with the issuance of new US$750M debt (2031 maturity; 7.25% coupon), for roughly net neutral impact on interest costs and smoother maturity curve. Management has been aiming to reduce long-term debt by US$1.0B through 2025 (we are modelling US$1.0B reduction by 2026) using excess liquidity, which appears achievable to us as FCF could remain relatively steady in 2024 and increase in 2025.
| Exhibit 3 - BBD Q1 Expectations – SGBM vs. Street |
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| Source: Company reports; FactSet; Visible Alpha; Scotiabank GBM estimates. |
| Exhibit 4 - BBD Revised Estimates |
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| Source: Scotiabank GBM estimates. |
| Exhibit 5 - Bombardier Inc. – Financial Estimate Summary |
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| Source: Company reports; FactSet; Scotiabank GBM estimates. |