Post by
retiredcf on Sep 21, 2022 9:00am
CIBC
EQUITY RESEARCH
September 20, 2022 Company Update
CARGOJET INC.
Investor Day Preview: A Focus On CJT’s Long-term Potential
Our Conclusion
CJT is hosting its inaugural Investor Day on September 27 at its hangar at
the Hamilton airport. We expect management to provide commentary on its
diversification strategy, the competitive macro environment and its long-term
earnings potential. We rate CJT an Outperformer with a $210 price target.
Key Points
CJT is hosting its inaugural Investor Day on September 27. We expect
management to focus its presentation on the following themes:
Diversification Strategy – Expanding Non-domestic Revenue: We expect
CJT to highlight that even with the focus on its non-domestic revenue
segments, these opportunities are leveraging the company’s moat, which
includes its best-in-class service offering and high market share in Canada.
We do not view the growth in ACMI, and to a lesser extent ad hoc charter, as
being dilutive to CJT’s valuation.
Competitive Environment - CJT's Competitive Moat Remains Intact:
While there is an increase in dedicated freighter capacity in Canada (and
globally), we expect CJT to provide an update on the competitive
environment and explain why it remains confident that this does not pose a
threat to its long-term growth outlook.
Consumer Spending Is Normalizing But CJT’s Revenue Is Less
Cyclical: While consumer spending is normalizing as evidenced by the Y/Y
decline in global air freight volumes, we expect CJT to highlight that its
revenue is less cyclical. This reflects lower e-commerce penetration in
Canada and shows the company is more resilient to Canadian retail sales
trends.
Long-term Earnings Potential – Not Tied To The Ebbs And Flows Of The
Global Freight Market: This is CJT’s inaugural investor day, so there is
uncertainty about the long-term targets the company will release.
Nonetheless, we expect CJT will point to a path towards ~$500MM in
EBITDA by mid-decade, with its ROIC approaching the mid-teen % range.
CJT’s Current Valuation Is Compelling: CJT is currently trading at 7.1x
2023E consensus EBITDA versus its average since 2015 of 10.2x. A good
floor has been ~7x over this period