RBC: Meeting with management and target at 2,75$Highlights from investor meetings with management
Our view: We had the pleasure of hosting BBD’s EVP and CFO, Bart Demosky, and VP Financial Planning and IR, Francis Richer de La Fleche, for a series of virtual investor meetings yesterday and last week. Key topics covered during the meetingsincluded the demand backdrop,supply chain environment, the competitive environment, and potential upside to the long-term services opportunity. Overall, we view the meetings as constructive to our positive view on the shares, and we continue to see BBD as representing attractive risk/reward at current levels.
Key points:
Demand environment shows no signs of slowing down. Demand for private aircraft and private flying remains broad-based and robust, driven by increases in aircraft utilization and growth in new customers. On this, management highlighted that fleet operators are flying their aircraft significantly more now (in many cases well over 1,000 hours per year) than they were pre-pandemic, while the penetration rate of customers who can afford to fly private has now surpassed pre-COVID levels. Additionally, BBD noted that the pricing environment has also been strong (though no Y/Y change provided, as it is not a number the company discloses) given the strength of the current demand backdrop.
Not considering equity raise. During the meetings, management put to rest any concerns around a potential equity raise and clarified that commentary on the Q3 call regarding its intent to be “opportunistic in our future capital market transactions” was in reference to future debt raises/ refinancings, not new equity issuance. We believe that concerns around a potential equity raise served as amoderate overhang on the stock following Q3 results and therefore view this recent commentary as alleviating a key near-term concern.
BBD less impacted by supply chain issues. Management noted that BBD has been able to successfully navigate the ongoing supply chain challenges due to: 1) long lead times (typically 9–12 months) on aircraft parts orders, which give suppliers the time they need to get product ready; and 2) a “north-south” supply chain that spans primarily Canada-US-Mexico, thereby reducing logistical challenges with current suppliers. Overall, we view the company’s supply chain position as a competitive advantage that further supports our high conviction around management’s ability to meet near-term delivery guidance.
Capital structure. Given progress made on debt reduction and cost-savings initiatives(which management noted are tracking nicely ahead of forecast), BBD believes there could be upside to its FCF profile in the near term and reiterated its target for positive FCF on a sustained basis beginning next year. In addition to this, we see furtherimprovementin the capitalstructure and continued deleveraging as key drivers behind the potential narrowing of the current valuation gap (~28%) vs. peers
Note from LB1: Above is the summary; I add the complete comment regarding the supply chain:
Supply chain and operations
BBD less impacted by supply chain issues. Given how topical global supply chain/logistics challenges have been recently, this was a key question that came up during the meetings as investors were looking to better understand BBD’s specific supply chain situation. Overall, management highlighted that BBD has not felt a material impact from supply chain challenges, and that the company has been able to successfully manage the minor issues that it has encountered. The primary reason for this is the long lead times that BBD provides its suppliers once an aircraft is ordered, which gives them plenty of time to respond to the company’s demand/needs and successfully ensure that the required parts/products are delivered on time. Management also highlighted that because its supply chain is primarily “north-south” and spans Canada-US-Mexico, the logistical/transportation issues impacting its suppliers have not been as pronounced as other companies that source goods from overseas have experienced. Taken together, we we view the company’s supply chain position as a competitive advantage that further supports our conviction around management’s ability to meet near-term delivery guidance.