TSX:CJT - Post Discussion
Post by
retiredcf on Jul 28, 2022 9:01am
RBC
Their upside scenario target is $334.00. GLTA
Outperform
TSX: CJT; CAD 133.12
Price Target CAD 287.00 ↓ 302.00
Cargojet Inc.
Solid quarter as mgmt guides to in-line back half; reiterate top idea as bear case quickly fading
Our view: CJT posted another strong quarter, and to put in context, Q2/22 revenue and EBITDA are up over 2x the levels achieved pre-COVID. Moreover, prior bearish concerns regarding future air freight capacity are falling away, as passenger airlines shift emphasis to favour narrow body over wide body aircraft; and also divert resources away from cargo ops to support passenger ops (amid major service disruption). With a clean balance sheet, strong FCF growth profile, and an attractive valuation—CJT is our single best idea in our transportation coverage universe today.
Key points:
Another strong quarter. CJT reported solid revenue at $247MM (cons $231MM) and EBITDA of $81MM (cons $80MM). While mostly inline, we contextualize this by comparing it to pre-COVID Q2/19 which is at over 2x those levels. While macro remains a potential headwind, we believe mgmt has executed on a substantial growth opportunity, and recent results (Q2 included) strongly demonstrate this trend. We also had the opportunity to catch up with mgmt. post call. Highlights as follows:
Competitive landscape getting better (not worse). Concerns regarding the increase in belly space capacity at passenger airlines have begun to subside as the ramp up in passenger has slowed; and (more importantly) there has been a systemic shift by passenger airlines away from wide body in favour of more cost-effective narrow body aircraft (e.g. AC has confirmed this with their recent fleet reconfig); and WestJet has halted altogether its widebody program and retrenched to Alberta / Western Canada where international freight is less relevant. Further, we are also seeing passenger airlines pulling resources from their cargo operations to support passenger ops, as they combat meaningful service disruptions (leading to more market share for CJT). All in, the key areas of concern for bears on CJT are not materializing — and in many instances, going the opposite direction.
Opportunity to benefit from higher aircraft utilization. It bears mention the opportunity for CJT to increase capacity without purchasing aircraft. This is a trend that drove valuation in the 2016-2019 time frame (as flights per week increased from 4 to (now) 7) and mgmt is flagging another opportunity to increase the number of flights per day. We see this as further upside as higher utilization increases EBITDA / aircraft going forward.
Raising 2022 estimates as mgmt provides a 2022 guide. We had been below consensus on 2022 (on concern that 2022 would be tough to keep up with 2021) but with Q2 strong and backed by mgmt's pointing to back- half in-line, we are taking our estimates higher (2022E EBITDA going to $341MM, from $332MM) - all other forward estimates unchanged). We are moderating our multiple, which we have done with our entire coverage on the back of macro concerns; and while our target goes to $287 from $302, it represents a >100% implied return.
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