CIBC: Investor Day PreviewOur Conclusion
BBD is hosting an Investor Day on March 23, 2023 (link to webcast) and we expect a positive update from the company, including raising its 2025 financial targets, commenting on business jet fundamentals, and providing additional granularity on its revenue growth drivers. We expect a change in tone at the upcoming Investor Day. The management presentations in 2021 and 2022 focused on restructuring the business and creating a more stable financial base by improving margins, FCF generation and lowering the debt levels. We expect the event next week will focus more on BBD’s growth opportunities and the steps it is taking to create a more predictable business
Key points
Expect 2025 Targets To Be Raised: 2022 was a milestone year for BBD as it outperformed expectations and its own guidance – the company saw revenue of $6.9B (initial guidance was $6.5B), adj. EBITDA of $930MM (initial guidance was >$825MM), and FCF of $735MM (initial guidance was >$50MM). BBD is tracking comfortably ahead of its 2025 targets, and we expect the company to raise its financial outlook at its upcoming Investor Day. BBD is currently guiding to 2025 revenue of $7.5B ($2B from aftermarket service and $5.5B from aircraft). For revenue, we expect BBD to take this up to >$8.5B. We are modelling $8.84B ($2.1B from aftermarkets and $6.7B from aviation) while consensus is at $8.3B ($1.83B from aftermarkets and $5.9B from aviation). For reference, BBD’s 2023 revenue target of $7.6B is ahead of its 2025 target. For adj. EBITDA, BBD is targeting $1.5B by 2025, and we expect the company to take this up to >$1.6B (we are modeling $1.64B and consensus is at $1.54B); BBD is guiding to 2025 FCF of more than $500MM. We expect this to go up to >$600MM (we are modelling $625MM and consensus is at $608MM). Lastly, BBD is targeting 2025 year-end net leverage of 3x, but we expect this to be revised to below 2.5x (we are modelling 2.3x and consensus is at 2.2x).
Update On Revenue Growth Levers: We expect BBD to provide a progress update on its growth levers. First, on its aftermarkets service strategy, BBD generated $1.5B of aftermarket revenue in 2022 and expects to generate $1.6B - $1.7B in 2023. We expect the company to see further growth in this segment, driven by an increase in market share of servicing BBD aircraft (getting to 50% by 2025) coupled with expanded capacity (BBD added ~1MM sq.ft in 2022). We expect the near-term focus will be on utilization rates and believe the foundation is in place to achieve $2B by 2025 with potential upside. Secondly, we expect the company to provide more detail on the growth of Defense. In 2022, BBD has re-oriented its offering under an integrated Bombardier Defense banner, and has turned its Wichita facility into its U.S. headquarters and main hub for Bombardier Defense. The company has noted that this will be an area of growth looking ahead, with the opportunity to be a ~$1B revenue business. The growth in defense
Healthy Business Jet Fundamentals: We expect BBD to provide an update on the state of the business jet industry, where we remain positive. The pre-owned business jet inventory remains at historic-low levels of sub-5% (a normal range is anywhere from 10% - 13%), and we would note that business jet traffic in 2023 YTD is still ~35% above 2019 levels according to Radarbox. Given this healthy environment, BBD has noted that it expects to deliver >138 aircraft in 2023 (up from 123 in 2022). More importantly though is that BBD remains disciplined and is not getting too aggressive with its line rate. We expect this to normalize to 140-145 annual deliveries looking past 2023 with BBD fully sold out this year and selling production slots in 2024. This provides the company with increased visibility on revenue but also cost absorption. While business jet fundamentals are stronger than what BBD assumed when it first released its 2025 targets back in 2021, we continue to see the company act rationally. BBD noted that it has the capacity to produce ~200 aircraft annually.
More Clarity On Growth Capex: BBD is guiding to capex of $350MM in 2023, with 30% - 40% of that tied to the Pearson facility which suggests maintenance capex of ~$230MM. The company did note at its 2022 Investor Day that it had earmarked up to $600MM for capex in 2025 with a large percentage dedicated to “strategic capital allocation”. With BBD’s FCF generation and deleveraging efforts ahead of schedule, we expect more colour on where it plans to allocate its growth investments as the company looks beyond 2025. We suspect these growth investment opportunities will be tied to refreshing the Challenger series and/or expanding its Defense segment.