RBC: a reasonable upside scenario of 200$2025 guidance raise is good; 2030 should be even
better; target to $100 with upside scenario at $200
Our view: Investor Day 2023 caps off a number of key positives to the
BBD investment thesis, including: strong execution since the initial targets
were set in 2021; material raise to guidance, well above expectations;
significantly lowered investment risk profile; and indications of more to
come. Adding this together and comparing it to the current valuation yields
what investors search for: a fundamentally mispriced security. Our price
target goes to $100, but we point to what we view as a reasonable upside
scenario of $200. BBD is and remains our top investment idea today.
Key points:
Investor Day 2023. Mgmt held its Investor Day event (virtual format) where
it 1) recapped the strong success since the targets were set in 2021; 2)
substantially increased the 2025 targets; and 3) suggested more to come
post 2025. Highlights as follows:
Impressive Execution. While the focus was on the increase to 2025
guidance, we would be remiss not to flag the significant achievement
made since 2020: 23% increase in revenue; a 4-fold increase in EBITDA;
cumulative FCF which was supposed to be non-existent over the last 2 years
came in at $835MM; debt reduced by 45%; leverage targets ~2 years early;
and credit rating upgrades that followed.
Increased 2025 guidance. Guidance was increased materially for 2025,
with revenue targets up by 20% to $9B and (particularly notable) FCF target
up 80% to >$900MM. See Exhibit 2.
More to come. What was not unveiled at this Investor Day is the company's
2030 targets - so we are unveiling our own 2030 scenario. Factoring in the
new growth drivers (e.g. CPO and Defense), we see line of sight to almost
$13B in revenue, $2.6B in EBITDA and $1.3B in FCF (all inclusive of a major
$2B clean sheet program).
Risks lowered. While macro is uncertain, we see less risk to the (higher)
2025 target than before. This is on the basis of substantially lower leverage
than had been anticipated; and a backlog of 2 years that now extends into
the target year (vs. in 2021 a backlog that was still being reconstituted).
BBD's current share price looks significantly mispriced - PT to $100. With
the risk factor associated with investing in BBD, in our view, significantly
lower than where it was 2 years ago, the multiple still reflects a 45%
discount to peers. Accordingly, we move our target multiple to 7.5x (from
6.5x) and our PT goes to $100 (from $89). Moreover, if we go out to 2030 to
incorporate what we expect to be the new revenue streams, low leverage,
and (by then) strong track record - valuing the shares in-line with peers (and
discounting back 6 years at 8%) yields a one-year valuation of $200. With
that upside potential, BBD is and remains our top investment idea