cibc first look: target outperform C$ 5.50 (down from 5.75)Q3 First Pass: Operationally In-line Results With Recovery Gaining Momentum
Key Takeaway: Positive impact. While CHR reported an operationally in-line quarter, we view these results in a positive light as we see the recovery in its underlying operations gaining momentum. Collection rates improved 10 points Q/Q to 77% and Jazz operated 55% of its Q3/19 flying levels and is guiding to operating between 75%-80% of Q4/19 levels in the current quarter. The company is hosting a call at 9:00 a.m. ET on November 11.
Q3 Recap: Below we recap CHR’s results.
CHR reported revenue of $274MM versus $197MM in Q3/20 and versus our estimate of $217MM (cons. $264MM). The main variance versus our estimate was higher pass-through revenue.
CHR reported adj. EBITDA of $78MM, down from $86MM in Q3/20 and versus our estimate of $78MM (cons. $81MM). Adj. EBITDA backs out ~$10MM of impairment provisions and lease repossession costs. From a segmented perspective, Regional Aviation Services posted adj. EBITDA of $52MM for the quarter, down from $60MM in Q3/20 and versus our estimate of $54MM. Regional Aircraft Leasing adj. EBITDA was $26MM, in line with $26MM in Q3/20 and versus our estimate of $24MM.
Adj. EPS came in at $0.09, down from $0.07 in Q3/20 and versus our estimate of $0.08 (cons. $0.09).
Liquidity Update: At the end of the quarter, CHR’s liquidity stood at $258MM, including $223MM of cash and $35MM of available room on its operating facility, up from $178MM at the end of Q2/21.
Regional Aircraft Leasing – Collection Rate Hits 77%: Within Regional Aircraft Leasing, CHR collected ~77% of lease revenue billed in Q3 from its lessees, excluding repossessed aircraft, up 10 points Q/Q. As of September 30, 2021, CAC's gross lease receivables was $79MM. The company notes that this amount may increase to ~$85MM by the end of 2021 due to potential delays in payments. Currently, CAC has two off-lease aircraft it is actively remarketing, down from eight at the end of Q2.
Jazz Expects A Step Up In Activity In Q4: In Q3, Jazz operated 55% of its Q3/19 flying levels. This is up from ~22% of its Q2/19 flying levels back in the second quarter. The company expects to operate 75%-80% of its Q4/19 flying activity in Q4.
Capex Outlook Adjusted: CHR adjusted its capex outlook for the year to $61MM-$79MM (previously guiding to $60MM-$79MM). CHR continues to expect 2021 capex excluding aircraft acquisitions and ESP to be $19MM-$29MM. Aircraft-related acquisitions and ESP in 2021 are expected to be $42MM-$50MM (previously guiding to $41MM-$50MM). The 2021 plan includes one CRJ900 in the RAS segment and reconfiguration costs on off-lease aircraft in the RAL segment.
Price Target Calculation We arrive at our $5.50 price target by using a blended 7.0x EV/EBITDA and 8.0x P/E multiple on our 2023 estimates, which are in line with where the company's peer group is trading. We also assume net debt of ~$1.6B.