Desjardins : target at 80 cents (from 55)2021 investor day recap—time to execute
The Desjardins Takeaway
We believe the 2021 investor day marked an important milestone in BBD’s future as a pure-play business jet manufacturer as it enabled investors to better understand its long-term potential (growth, margin, FCF generation) and the path to get there. While we believe management’s strategic plan through 2025 is sound, we note that a significant level of execution will be required to achieve the 2025 financial targets. We maintain our Hold rating although we have increased our target to C$0.80 (from C $0.55).
Highlights
Management appears to have decent visibility on the key levers for margin expansion through 2025—expected improvements are front-end-loaded. Management expects an adjusted EBITDA margin of ~20% in 2025, implying adjusted EBITDA of ~US$1.5b (up from ~US$0.2b in 2020). The margin expansion will be driven by (1) growth of the higher-margin aftermarket business, (2) realization of the US$400m cost-saving program by 2023, and (3) further execution on the learning curve for the Global 7500 program. Interestingly, management noted that a large portion of the cost savings would be front-end-loaded in the 2021–25 plan.
Deleveraging strategy—management is expected to deploy the proceeds from BT divestiture by mid-2021. Management will be prioritizing the paydown of near-term maturities to clear a minimum three-year maturity runway to execute its turnaround plan. Through 2021, management intends to maintain a cash cushion of US$1.5–2.0b to support the business. BBD intends to deploy ~US$3.0b of capital from the proceeds of the BT divestiture toward debt reduction by mid-2021.
Business expected to generate FCF in excess of US$500m in 2025. Encouragingly, management noted that FCF would turn positive in 2022 (ahead of our forecast and consensus of 2023) and to reach US$500m+ in 2025. By the end of 2025, BBD expects net leverage to decrease to ~3x (down from ~12x expected in 2021). We prefer to remain conservative and forecast FCF of US$352m in 2025, which translates into net debt to EBITDA of 3.8x.
Valuation Increasing our target to C$0.80 (from C$0.55). Our target is based on an EV/EBITDA multiple of 7.0x on our 2023 EBITDA forecast. We use an exchange rate of C$1.27/US$1.
Recommendation
Reiterating our Hold rating. Given BBD’s elevated indebtedness, we prefer to remain on the sidelines as we await further clarity on the execution of the turnaround plan