RBC: Target at 103 $ ( Unchanged)Note fron Tempo 1: One of the most positive analysis I have ever seen.
Bizjets: Activity remains above 2019 levels and used inventory at lows. Total bizjet activity in the US remains 14.5% ahead of 2019 levels and has hovered in this mid-teen range since Q3/22, indicating structurally higher demand for private travel. In addition, global activity data shows bizjet activity is 51% higher in Q2 vs 2019 with Bombardier jet activity above that of Gulfstream according to AirNAv Radar Box. As of last quarter, used inventory continues to be well below the normal range of 11-14% which should support demand for bizjets and note the number of UHNW individuals (Billionnaires) continues to trend 22.6% above 2019 levels. Taken together, the data points to robust manufacturing and aftermarket demand which we believe supports our 2024E EBITDA estimates above consensus.
Q2 Estimates
Bombardier (BBD): Q2 estimate unchanged; price target unchanged at $103; reaffirm Outperform rating.
We are maintaining our Q2/23 EBITDA estimate of $265MM, above consensus of $245MM. Our Q2 estimate reflects 32 total deliveries, of which 24 are large jet deliveries and +13% growth in services revenues. Our key focus into the quarter will be on demand, book to bill and potential for a services guidance raise, first highlighted at our conference in May. We continue to use 2025 as our valuation year, and when applying our 2025 EBITDA estimate of $1,640MM to our unchanged 7.5x target multiple, we arrive at our $103 price target. BBD remains our top recommendation under coverage and currently trades at a ~40% discount to peers
Investment summary
Our Outperform rating reflects our view that the company presently screens as an attractive deep-value opportunity with the transition to a pure-play biz jet company now complete. While risks remain with the execution of strategic objectives, we see the existing business as less complex and the cost structure as more streamlined, which should eventually support a return to FCF breakeven on a sustainable basis.
With Bombardier now finishing a multi-year period of high investment spend to develop and position its product and service portfolio, 2023 should be an important transition year. The company has pursued ways to further deleverage the balance sheet through strategic alternatives (i.e., asset sales), and we believe BBD has sufficient liquidity to absorb smaller issues that may still arise.
Key potential catalysts for the shares would be related to: (1) an acceleration in demand for the company’s business jet aircraft (particularly the Global 7500/8000); (2) betterthan-expected FCF generation/usage; and (3) formal guidance provided on longer-term run-rate margins.