RBC: Reaffirms our very positive view Bizjet market deep dive reaffirms our very positive view on Bombardier shares
Our view: Our Bizjet Primer published today (details here) further
reinforces our very positive thesis on BBD shares. The combination of
a promising age distribution and consistently high operational levels
highlight substantial potential for growth in services. Moreover, business
jet supply and demand dynamics point to an under supplied market
suggesting upside to our production estimates. Key is that these trends are
not reflected in consensus expectations therefore creating a very attractive
entry point in BBD shares in our view. Continue to flag BBD as our top idea.
Key points:
• Composition of the fleet underpins demand trends. Important from
our analysis is that the bizjet fleet is the oldest in over two decades.
With used inventory levels remaining significantly below the typical
range before the pandemic, we expect solid forward demand and pricing
support for bizjets, especially for large jets, which remain at the lowest
inventory levels out of the three major jet categories. We see this as
providing a supportive demand environment for BBD to deliver on its
production targets and 2025 FCF guidance, which implies a double-digit
FCF yield off today's share price.
• We see aftermarket services as a significant growth driver longer-term.
Amplified usage rates from fleet operators, longer/costlier certification
processes, and trends favouring larger jets in our view are increasing
the frequency of maintenance and need for parts replacements. We see
these trends supporting BBD's services growth out to 2030, representing
a recurring, high-margin source of growth.
• Analysis highlights upside to production guidance. BBD guided to what
we see as a conservative delivery target of ~150 aircraft/year post 2025.
Our market analysis suggests the market is under supplied with the total
bizjet fleet not keeping up with the strong increase globally in wealth
creation and GDP during the pandemic. This supports higher potential
production rates and represents attractive upside optionality in our view.
• Supply chain remains a key risk. We believe BBD’s investments and
strategic shifts in production have helped mitigate supply chain risk.
However, we remain mindful that technician and parts supply continue to
temper build rates and future deliveries will be dependent on continued
execution from Bombardier’s suppliers, primarily in engines.
• Our 2030 estimates highlight significant long-term opportunity. We
introduce our 2030 estimates, which incorporate 150 deliveries per year
(including higher Defense deliveries) and CPO contribution of $1B, along
with steady services revenue growth and 300 bps of margin expansion.
While our estimates out to 2030 admittedly carry a high degree of
uncertainty, we see avenue for EBITDA of $2.3B, FCF of $1.8B, and EPS of
$15, making what we view as reasonable assumptions out to 2030. This
forms the basis of our upside scenario valuation of $244 and supports the
significant long-term opportunity we see in the shares at today's levels.
From Tempo !: Have I already told you that they are bullish on the stock ?