CIBC: From Bearish to bullish.Note from Tempo 1: This analyst was very cautious with Bombardier ( Target at 61 $ 10 days ago). Then he become more positive at 67$ after the Q1 results; then now : 91$
Key Takeaways From Investor Day – Focus On Creating A More Predictable Business Model
Our Conclusion
Heading into BBD’s Investor Day, there were two key questions we had
facing the company (and ones we often heard from investors). First, what
steps could BBD take to continue to improve the resiliency of its earnings
stream through a full business jet cycle? Second, did the company need to
increase its capital spend post-2025? BBD’s presentation directly addressed
these two questions/concerns. On the former, it is positioned to generate
~50% of its revenue from outside of its Manufacturing segment (i.e., growth
in Aftermarket, Defense, Pre-owned) versus accounting for 31% of revenue
in 2023. We would also note that these other revenue opportunities have a
higher EBITDA margin profile (20+%). On the latter, BBD was clear that its
operational capex would remain in the ~$300MM range per year out to 2030.
The significant cumulative FCF potential over the next five to six years puts
BBD in a position to pursue additional opportunities to grow, as well as return
cash to shareholders while maintaining a solid balance sheet.
Net-net, BBD’s strategy should result in a more predictable revenue and
cash flow stream aided by a healthy business jet environment and multi-year
backlog. With greater clarity on BBD’s FCF profile post-2025, which we view
as a de-risking event, effective May 1, 2024, we are upgrading the company
from Neutral to Outperformer. Our price target moves from C$67 to C$91.
Key Points
Significant FCF Generation Visibility: One of the key messages from BBD
was its intention to holds its operational capex to ~$300MM a year post-2025.
A question the company has received in recent years is the need for a new
clean sheet aircraft and concerns that this would result in a step-function
increase in capex in the latter half of this decade. BBD was clear it sees no
need for a new clean sheet aircraft. We believe this positions BBD to generate
~$7B in cumulative FCF over the next six years, and we think the company is
capable of generating ~$1.4B of annual FCF by 2030. If we apply an FCF
multiple of 10x to this, it would infer an undiscounted equity value per share of
~$200 by 2030. Discounting this back six years at 11% infers an equity value
per share of $110. We view BBD’s commitment to its current operational capex
spend and confirmation that a clean sheet aircraft is not needed over its
forecast period as a significant de-risking event for its equity.
Creating A More Predictable Revenue Stream: BBD laid out its plans to
continue to grow its revenue by focusing on Aftermarkets, Pre-owned and
Defense. These revenues are stickier and have higher margin, which
positions the company to move its consolidated EBITDA margin above 18%
post-2025 and into 2030. We would also note the outlook for aircraft sales
remains healthy, anchored by BBD’s $14.9B backlog and growth
expectations for the medium and large business aircraft segment.
From the full report :
By 2030, BBD could be generating ~$1.4B in FCF annually. If we apply an FCF multiple of 10x to this, it would infer an undiscounted equity value per share of ~$200. Discounting this back six years at 11% infers an equity value per share of $110. We view BBD’s commitment to its current operational capex spend and confirmation that a clean sheet aircraft is not needed over its forecast period as a significant de-risking event for its equity