TSX:CJT - Post Discussion
Post by
retiredcf on Dec 15, 2021 6:55am
Canaccord 2022 Top Picks
Cargo flying high, you know how I feel
Investment Recommendation
In 2021, Cargojet performed in line with the Canadian airline industry, with shares falling ~22% YTD, largely driven by investor uncertainty around the stickiness of ecommerce post-COVID. On the air cargo front, we expect demand will remain elevated in the medium to long term, as data suggests the pandemic has induced a lasting impact on consumer spending habits. We remain confident that Cargojet is
well positioned to benefit from the secular shift in consumer spending and ongoing penetration growth of Canadian ecommerce as it continues to execute operationally, build its fleet, and secure additional long-term contracts. We reiterate our BUY recommendation and highlight Cargojet as our top pick while maintaining our target of $240.
Investment Highlights
• Air cargo demand growing above elevated levels. October IATA data supports our growth thesis as industry-wide cargo tonne-kilometres (CTKs) increased by 13.5% y/y off an already elevated 2020 and has remained robust over the past six months. In North America, cargo demand grew +7.8% y/y on +16.9% capacity growth, resulting in a ~45% load factor.
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Ecommerce has growth runway beyond pandemic. Covid-induced government lockdowns shifted consumers toward a hybrid shopping model and advanced the growth of ecommerce penetration, particularly in Canada. We believe the overarching shift in ecommerce and growing consumer demand for expeditious shipping will drive elevated cargo demand even as retailers reopen and supply chains recover.
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CJT continues to execute operationally. Despite the plethora of operational challenges faced by the aerospace industry, Cargojet continues to maintain its strong 98% on-time performance, which has become increasingly more relevant given consumers' preference for overnight shipping. We believe this positions CJT favorably to large-scale customers like DHL and Amazon, who service time-sensitive end markets and value the reliability of dedicated air cargo delivery.
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Additional capacity expected to come online. Management’s capex guidance of $280-290M for F22 reflects the addition of three 757-200s, three 767-300s, and the initial deposit for the company’s 777s, which are expected to be delivered in F23. Collectively, these deliveries will add significant capacity to CJT’s existing fleet of 31 aircrafts. Importantly, management has indicated it currently has sufficient demand to fill the additional capacity upon delivery, implying that these assets will become immediately revenue generating.
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Recent pullback presents an attractive entry point. Unlike its airline peers, CJT’s underlying fundamentals proved resilient throughout the pandemic. We believe the shares' recent pullback presents an opportune entry point for investors seeking the expected upside from ecommerce adoption while benefiting from the added stability of contracted cargo demand.
Valuation
Cargojet currently trades at 11.6x NTM EBITDA on our estimates. Our $240 target is based on ~15.5x NTM EBITDA, one year out (12 months ended September 2023). We believe that the company’s positioning as a dedicated freighter combined with its increasingly valuable B2C contracts, growing fleet, and virtual monopoly in overnight shipping, justifies our target and multiple
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