RBC: mgmt executing wellCapitalizing on attractive demand environment; mgmt executing well toward 2025 plan
Our view: BBD capped off a solid year whereby it exceeded its upward revised 2021 guidance, putting the company solidly on track toward achieving its 2025 targets. Not surprisingly, the new 2022 guide points linearly toward that objective — with room (in our view) for upside. While BBD is indeed capitalizing on a strong demand environment, it is executing well on the production side having successfully navigated the Global 7500 learning curve. Continue to view the shares favourably and reiterate OP, Spec. Risk rating.
Key points:
Q4/21 results above expectations. BBD reported adj. EBITDA of $232MM, which was above consensus $203MM (RBC: $211MM). The key driver of the beat was higher margins; which is a positive read on the Global 7500 learning curve progress and successful execution on Servicesrevenue. FCF was a notable stand-out again this quarter ($314MM vs. consensus $109MM) and in our view a key success factor for the company as it continues to focus on deleveraging. Overall, a solid Q4 for Bombardier.
New 2022 guidance consistent with 2025 targets. Mgmt outlined new 2022 guidance for Revenue, EBITDA and FCF, which was consistent with 2025 targets, broadly in-line with expectations, with room in our view for upside. See Exhibit 1.
Double benefit: strong demand meets solid execution. Bombardier is without a doubt benefiting from a step function increase in demand for business jet aircraft; which, while beneficial, is something that is outside mgmt's control. Fortuitously, BBD's realignment of its product portfolio to focus on super mid-size and large-cabin business jets could not have come at a better time - with most of its products sold out through to 2023. And finally (and arguably most important), mgmt has executed well on three key factors: 1) Global 7500 learning curve; 2) cost reductions; and 3) penetration into Services. These factors are indeed inside mgmt control, and it has been nice to see the solid execution - and all of this despite the risks and challenges presented in the current supply chain environment.
Adjusting 2022 to reflect guidance; while out year estimates remain unchanged. We are raising our revenue and lowering our EBITDA to align with guidance; however as noted above we see room in 2022 for upside to our estimates (on top line due to pricing and Services growth and on margins due to continued cost execution, pricing and mix). Our 2023 to 2025 estimates are unchanged; meaning we see BBD as able to meet both its near- and longer-term targets. Target multiples and discount rate unchanged, and applying these to our 2025E EBITDA, we arrive at our unchanged $2.25 price target.