Another Helpful Analyst NoteFrom Desjardins regarding Bombardier - an encouraging perspective for the stock's medium term prospects
Rating: Buy, Risk: Above-average, Target: C$80.00
BBD.B C$18.64, TSX
Could the bizjet cycle last longer on the back of disruptions with commercial flights?
The Desjardins Takeaway: Positive
Highlights
As the peak summer travel season is upon us, most people are aware of the negative headlines of delays at Canadian airports over the past week. However, these issues are not specific to Canada, they are occurring around the globe. While our very own Pearson airport claimed the #1 spot for flight delays on July 5, the US Bureau of Transportation Statistics shows that close to 55,000 flights were cancelled in the first two months of 2022, the highest ever recorded for the first two months of the year. Bloomberg has reported that Europe had more than double the cancellations of US carriers between April and June. Axed flights in June totalled 7,870 for departures from Germany, the UK, France, Italy and Spain, almost triple the number in the same period in 2019.
These days, some investors are approaching the bizjet sector with a bit more caution as book-to-bill ratios for the industry are reaching peak levels (BBD’s 1Q book to bill was 2.5x, the highest in its history) and fears of an economic downturn are heating up. We, on the other hand, see the disruption occurring in commercial aviation globally as a strong tailwind that will likely continue to drive consumers to bizjets and keep the current activity cycle at these elevated levels. As the democratization of private flying continues to accelerate, with companies such as Wheels Up making it more affordable and available, the demand for travel will continue to flow into the bizjet market, in our view. The current bizjet demand is so strong that FT reported that NetJets jet-card sales and renewals are still suspended until the end of 2022.
Doug Gollan, the founder of Private Jet Card Comparisons, stated that around 70% of his subscribers are now signed up to more than one private-aviation solution. His July publication shows that bizjet charter prices climbed 6% in 2Q. Despite inflation, demand remained strong with his subscribers expecting to fly privately 39.7 hours in the next 12 months, slightly below the trailing-12-month average of 41.7 hours.
This data provides a positive read through for BBD’s upcoming 2Q results. With order activity, flight hours and pre-owned bizjet inventory all displaying positive readings for 2Q, we see no clear evidence of a downturn in the short term and remain bullish on BBD. We look at the recent pullback in the stock as a buying opportunity, as the ~40% discount vs peers (GD, TXT, ERJ and AM) on an EV/EBITDA (FY1) basis is unjustified, in our view.