Desjardins : PositiveSolid 4Q21 results with first full-year of posive FCF since 2010; deliveries of at least 138–144 units expected in 2023
The Desjardins Takeaway: Posive
BBD reported solid 4Q results. Business aircra revenue (ex disconnued operaons) of US$1.7b was mostly in line with consensus and our forecast of US$1.8b. Adjusted EBIT (ex disconnued operaons) of US$113m (6.4% margin) was above consensus of US$87m and our forecast of US$91m. Lastly, adjusted EBITDA (ex disconnued operaons) of US$232m (13.1% margin) also beat consensus of US $203m and our forecast of US$199m.
On a segmented basis, BA generated revenue of US$1,385m (-31% yoy as BBD normalized the delivery profile across quartersto reduce seasonality between quarters) from manufacturing and otherrevenue (we expected US$1,519m), and US$363m (+44% yoy or +17% vs 4Q19; second me in a row above pre-pandemic level) from services (we expected US$325m). BBD delivered 38 business jets in 4Q (we expected 38 deliveries, in line with consensus). The business jet backlog ended 4Q at US$12.2b, up sequenally from US$11.2b (book-to-bill of 1.6x based on the dollar value of the backlog).
More importantly, FCF (investors’ main focus) of US$314m was much beer than consensus of US $109m (we expected US$139m), resulng in the first full year of posive FCF generaon since 2010 at US$100m. As of December 31, pro forma liquidity was ~US$2.1b and pro forma net debt was ~US$4.9b.
Management introduced encouraging 2022 guidance. It expects BA revenue to be >US$6.5b (we expected US$6.5; consensus US$6.6b). From a profitability standpoint, adjusted EBITDA is expected to be >US$825m (we expected US$819m; consensus US$851m) while adjusted EBIT is expected to be >US$375m (we expected US$401m; consensus US$424m). FCF is expected to be beer than US$50m, which we view as very conservave (we expected US$228m; consensus US$157m).
Interesngly, management highlighted that starng in 2023 aircra deliveries would increase by 15– 20% over 2022 (expected to be in excess of 120 units), implying more than 138–144 aircra deliveries (consensus was at 135)—this is beer than our inial expectaon. We expect management to provide an update on its long-term targets (2023–25) during the upcoming virtual investor day on February 24. Recall that management’s inial 2025 objecves implied 130–135 deliveries.
From a trading standpoint, we expect the stock to perform well in light of these strong results. The conference call (8am EST; dial-in 888-789-9572, passcode #9254824) will be key for monitoring (1) the ramp-up of the Global 7500 program; (2) the demand environment for business jets in the context of the producon rate increase; (3) FCF guidance; (4) ongoing capacity expansion projectsfor aermarket services; and (5) progress on the restructuring program in 4Q.