Our view: On the back of elevated demand (witness the meaningful Q4 beat just announced), CJT announced another large step-up in fleet spending. This prompted a sell-off in the shares, as investors remain skittish about CJT bringing on too much capacity ahead of when passenger belly capacity returns. Mgmt were adamant that demand is there and customer willingness to lock down the capacity through ACMI multi-year contracts would, in their view, be the lower risk option; with upside from deployment of block-hour capacity if demand remains elevated. We view the risk / reward as extremely favourable and reiterate our OP.
Key points:
Q4 results above. Adj EBITDA of $91MM was well above consensus $82MM (RBC: $90MM). While Charter benefited from adhoc business associated with BC flooding, there was substantial growth across all lines, with domestic business (+18%), ACMI (+27%) and charter (+55%) all higher y/ y. Notable as well was that 2021 was supposed to suffer from a difficult comp in 2020 (due to expedited PPE shipments early in the pandemic). Despite that one-time business, 2021 still grew on top of the "inflated" 2020, reflective of the structural lift in demand that has occurred for CJT's service. Going forward, we expect eCommerce demand to result in continued growth in Domestic revenue, while new aircraft will be devoted to backstop both the Domestic business and to capitalize on the growth in demand for international freighter capacity. In summary, a strong 2021 capped off by an exceptional Q4 for CJT.
Another step up in freighter investment announced. Despite the strong results, the key driver to the market pressure today was (another) significant expansion in the company's fleet (and associated capex). Capex guidance went to $550MM (from $280MM) in 2022 and to $350MM (from $240MM) in 2023. With maintenance capex to come in at ~$120MM/yr, this means >$1.1B in growth capex is to be invested by CJT over the next 4 years, bringing the company's fleet to 50 aircraft by the end of 2025.
Raising estimates significantly to account for new aircraft. While mgmt. will likely consider a mix of ACMI and block-hour flying for the new aircraft, we are assuming only lower return ACMI revenue in our model for the new aircraft. That said, the level of EBITDA generated even using that more conservative assumption results in our EBITDA going to $316MM (from $306MM) in 2022E and to $382MM (from $357MM) in 2023E (see Exhibit 4 for our estimates out to 2026).
Powerful risk/return profile. With the company's B/S in good shape at year-end (0.8x Debt/EBITDA), the growth is expected to be funded by internally generated cash flow and excess debt capacity. While the higher capex does come at higher risk (reflected by our downward adjustment to target multiple to 14x (from 15x)), this is more than offset by the growth profile, resulting in our target going higher - to $311 (from $295). CJT is and remains, our single best idea in our coverage universe today.