RBC: BBD remains our top investment idea.Highlights from Bombardier's Investor Day 2024
Our view:
Investor Day 2024 highlighted 2030 growth will be accomplished
by leveraging existing higher return platforms in Aftermarket services,
Defense and CPO vs production growth, leading to a resilient operating
model, which we see as primed for a re-rating. Key is revenue growth
beyond 2025 will likely be largely organic, with upside potential from M&A
and strategic investments. The company pointed to robust FCF conversion
backstopped by $12B in tax attributes and a plan to return cash to
shareholders post-2025. Our price target increases to $99, with upside
potential to our 2030 scenario. BBD remains our top investment idea.
Key points:
Investor Day 2024. Mgmt held its Investor Day event where it 1) recapped
progress made to date - thereby reaffirming its 2025 targets (see pg 2), 2)
highlighted growth opportunities out to 2030, notably in Services, Defense
and Pre-Owned; and 3) laid out its capital allocation plans post-2025.
Highlights as follows:
• Conservative production outlook. Mgmt spoke to a delivery run-rate of
150/per year beyond 2025, with growth driven by a higher proportion of
Aftermarket, Defense and CPO, which combined, the company expects
will represent 50% of revenue by 2030 (from 31% in 2023). Given these
segments' above GDP growth rates, stable end markets, and higher
profitability, we believe this could be a driver of a valuation re-rate.
• Strong outlook for Aftermarket. The company highlighted it is on track
to reach 2025 aftermarket revenue guidance of $2B by 2024, one year
earlier. In addition, due to a growing fleet of larger aircraft, the company
pointed to mid to high single digit revenue CAGR out to 2030 (above our
prior 5%). Key is we believe the company has the potential to grow their
share above their 2025 stated goal of 50% of its installed base, on further
footprint expansions and operational efficiency gains.
• Defense up; CPO down. Key from the presentation was mgmt's
expectation for Defense revenues of $1B to $1.5B by 2030, above
previous indications of $1B. This was offset by expected CPO revenues
of $0.5 to $1B vs $1B previously. We view this as a net positive given the
higher margin profile of Defense and mgmt noting new areas of growth
in CPO adjacent businesses such as brokering and resale.
• Capital allocation targets high ROIC investments. While no specific
breakdown was provided, the company plans to target high ROIC
investments, leveraging its platforms in Defence and Aftermarket
bolstered by M&A. Mgmt spoke to a refresh or upgrade in the pipeline,
noting significant financial success with the 3500 and ruled out a clean
sheet until new technology justifies the investment. Finally, the company
plans on returning cash to shareholders via buyback or dividend, which
we see as appropriate given the shoring up of the balance sheet.
• Estimates and PT. Our PT goes to $99 (from $95) on updated services
guidance. Our 2030 upside scenario (259$) also increases on higher margin
expectations offset by flatter production