Desjardins : 104$ (+1$) 4Q23 preview—recent order gives us further comfort for 4Q23 and beyond
The Desjardins Takeaway
Looking ahead to 2024, we expect BBD—our favourite A&D name—to be a significant
beneficiary of a declining interest rate environment. We forecast leverage falling to 2.6x
at end 2024 and 1.6x at end 2025, which should attract incremental investors. From a
2024 guidance perspective, we expect management to call for revenue of >US$8.0b,
adjusted EBITDA of >US$1,300m, adjusted EBIT of >US$900m, FCF of >US$450m and
>142 bizjet deliveries, sustaining a book-to-bill ratio of 1x.
Highlights
Order in late 4Q further reinforces our forecast that BBD will hit 1x book-to-bill in
2023. With BBD needing only 46 bookings before year-end to hit 1x book-to-bill for
2023, the 12-jet order in 4Q provides a nice chunk (>25%)—which makes us quite
confident that BBD will achieve its target while also reinforcing our thesis that the
Challenger 3500 platform continues to sell well despite its age.
Gulfstream failed to get its new G700 platform certified before year-end, preventing
the company from delivering ~19 aircraft in 2023. While bizjet customers are usually
loyal to specific OEMs, some customers will likely be disappointed, which could be
positive for BBD over time as we could potentially see cancellations at Gulfstream.
Recently issued BBD 8.75% bond now trading at 7.96% as high-yield credit conditions
improve. We expect cash interest to decrease as BBD continues to pay down debt (we
forecast C$500m in debt reduction in 2024) and refinances at lower rates.
Valuation
We increased our target to C$104 (from C$103) as we tweaked our multiple and FCF
estimate and accounted for the change in FX. Our target is based on an EV/EBITDA
multiple of 8.25x (from 8x to account for the passage of time from FY2 to FY1) on our
2024 EBITDA forecast. We have adjusted our exchange rate to C$1.34/US$1 (from C
$1.38). We also took the opportunity to lower our FCF forecast for 2024 to US$481m
(from US$560m) while leaving our 2025 FCF forecast relatively unchanged (US$869m),
as we slightly increased the working capital investment required to execute on the jump
to ~150 deliveries in 2025.
Recommendation
Reiterating our bullish stance. We remain confident in management’s ability to meet
(and potentially exceed) its 2025 targets.