Desjardins : Flash note
2025 targets revised upward—stronger-than-expected EBITDA and FCF targets open the door for capital deployment opportunities
The Desjardins Takeaway: Positive
This morning, BBD revised upward its 2025 financial targets ahead of its virtual investor day, scheduled for 9:0011:30am EDT today (register here).
For 2025, management now expects to generate total revenue of >US$9b (up from ~US$7.5b). This is above consensus of US$8.3b and our forecast of US$8.2b. Management’s target assumes aircraft sales of >US$7b (up from ~US$5.5b) and ~150 deliveries in 2025, above our forecast of US$6.2b and 145 (consensus is at 146), respectively. Management maintained its aftermarket revenue target of ~US $2.0b (~22% of 2025 revenue, down from ~27%), in line with our forecast of US$2.0b.
From a profitability standpoint, management decreased its adjusted EBITDA margin target to ~18% (previous target was ~20%) for 2025, implying adjusted EBITDA of ~US$1,625m, above consensus of US $1,514m (18.3% margin) and our forecast of US$1,566m (19.0% margin). We do not view the decrease in margin outlook as an overly bearish indicator given the implied improvement from 13.5% in 2022; also, an 18% adjusted EBITDA margin would still position BBD at the higher end of the business jet spectrum (for reference, industry leader Gulfstream generated margin of 17.4% in 2019, 15.9% in 2020 and 15.2% in 2021).
Management expects the business to generate FCF in excess of US$900m (up from >US$500m, implying an impressive 55%+ FCF conversion from adjusted EBITDA, up from 33% implied by the previous target); this is above our forecast of US$693m and consensus of US$644m. This increase in conversion is helped by the fact that beyond 2023, capex (US$350m due to Pearson) is expected to return to the US$200– 300m range. By the end of 2025, BBD expects net leverage to decrease to 2.02.5x (improved from ~3.0x; we expected 1.8x).
Bottom line, we believe the stronger-than-expected FCF, revenue and deliveries targets, combined with no indication of the development of a clean sheet design are the key takeaways. We view this decision as positive, as it is less capital-intensive, more favourable to creditors and less risky; we also note that a clean sheet design has received pushback from investors. Overall, we are impressed with the strong targets and expect the stock to react positively today.