Desjardins : express PulseResilient 1Q23 results despite the regional banking crisis in the US
The Desjardins Takeaway: Neutral
BBD reported 1Q results which were mostly in line. Total revenue came in at US$1,453m, slightly above consensus of US$1,432m and below our estimate of US$1,502m. Adjusted EBITDA was US$212m (14.6% margin), above consensus of US$205m (we forecast US$207m), and adjusted EBIT was US$138m (9.5% margin), also above consensus of US$113m (we forecast US$111m). Finally, FCF (investors’ main focus) of -US$247m came in worse than consensus of -US$187m and our forecast of -US$150m, driven by working capital build in inventories for 2023 deliveries and continued investments to support the completion of a new facility at Toronto Pearson International Airport.
BBD delivered 22 business jets in 1Q (we expected 24 deliveries, as did consensus). The business jet backlog ended 1Q at US$14.8b, remaining flat sequentially (book-to-bill of 0.9x based on net new aircraft orders over aircraft deliveries in unit terms). We estimate the book-to-bill would have been ~0.8x if BBD had delivered the consensus 24 aircraft in the quarter.
More importantly, management reiterated its 2023 guidance—revenue >US$7.6b, adjusted EBITDA >US$1,125m, adjusted EBIT >US$695m, FCF >US$250m and deliveries >138 units.
Adjusted net debt/TTM EBITDA came in at 4.6x, remaining flat sequentially (we expected 4.7x). As of March 31, pro forma liquidity was ~US$1.4b and pro forma net debt was ~US$4.4b. BBD also announced a new NCIB program to purchase up to 600,000 Class B shares, representing ~0.69% of shares outstanding, in order to mitigate the dilutive effect of granted stock options. Moody’s April upgrade (to B2 from B3) report for BBD stated that a financial leverage ratio below 5.0x (using gross debt) and sustainable FCF could lead to an additional ratings upgrade. Using this calculation, we forecast BBD could reach this level in 4Q23.
We expect a neutral reaction given the reiterated guidance, same book-to-bill as that posted by Gulfstream, flat backlog and steady demand quoted by management, all despite the regional banking crisis which occurred in 1Q in the US (the largest bizjet market globally). The conference call at 8am EDT (dial-in 888-396-8049) will be key in terms of monitoring (1) the demand environment for business jets, and (2) debt repayment