RE:AC: Available capital over the next 3 yearsAgain, shorts’ narrative exaggerated as usual. I have updated the numbers/analysis from my previous post based on new information. Though I believe, that recent published numbers include sand bagging, still I am using the numbers are published. Changes are below:
- 2024 target EBITDA drops from $4.0 to $3.4B. With 2 Qs already completed, we should expect higher end of their guidance.
- Available capital for 2024 is going to $2.0B at LR = 1.5
| 2024 | | EBITDA | CFO | Capex* | FCF | Net Debt | LR | Available Capital @ LR = 1.5 |
| $3.4 | $3.7 | $1.8 | $1.5 | $3.2 | $0.9 | $2.0 |
A strong 2024 year (FCF and LR), will set a strong base for high capex years (2025-2026). Following are different scenarios, which can pan out:
| 2025 | Scenario | EBITDA | CFO | Capex* | FCF | Net Debt | LR | Available Capital @ LR = 1.5 |
| Extreme | $2.5 | $2.7 | $2.5 | -$0.3 | $3.5 | 1.4 | $0.3 |
| Worst | $3.4 | $3.7 | $2.5 | $0.7 | $2.5 | 0.7 | $2.7 |
| Most likely | $3.8 | $4.1 | $2.5 | $1.1 | $2.1 | 0.5 | $3.7 |
| Optimistic | $4.2 | $4.5 | $2.5 | $1.5 | $1.7 | 0.4 | $4.7 |
| | | | | | | | | |
| 2026 | Scenario | EBITDA | CFO | Capex* | FCF | Net Debt | @ LR | Available Capital @ LR = 1.5 |
| Extreme | $3.3 | $3.5 | $4.5 | -$1.5 | $5.0 | 1.5 | $0.0 |
| Worst | $3.6 | $3.9 | $4.5 | -$1.1 | $3.6 | 1.0 | $1.9 |
| Most likely | $4.0 | $4.3 | $4.5 | -$0.7 | $2.8 | 0.7 | $3.3 |
| Optimistic | $4.4 | $4.6 | $4.5 | -$0.4 | $2.1 | 0.5 | $4.6 |
| | | | | | | | | |
| 2027 | Scenario | EBITDA | CFO | Capex* | FCF | Net Debt | @ LR | Available Capital @ LR = 1.5 |
| Extreme | $4.0 | $4.3 | $1.7 | $2.1 | $2.9 | 0.7 | $3.2 |
| Worst | $4.0 | $4.6 | $1.7 | $2.4 | $1.2 | 0.3 | $4.9 |
| Most likely | $4.3 | $5.0 | $1.7 | $2.8 | $0.0 | (0.0) | $6.5 |
| Optimistic | $4.7 | $5.3 | $1.7 | $3.1 | -$1.1 | (0.2) | $8.1 |
| Recession | Net debt | 25-26 FCF | Available Capital @ LR = 1.5 |
| Severe 25/26 | ($1.1) | ($0.7) | $1.9 |
| Severe 25/ Moderate 26 | $3.0 | $0.1 | $3.0 |
| Moderate 25/26 | $2.8 | $0.4 | $3.3 |
At rationalized capex numbers (as per my earlier posts, shifting of capex due to limited OEM capacity), available capital will be higher than mentioned above. Sooner or later we will see adjusted capital spend when more information is available. And in 2027, FCF and available capital will increase by a huge step. Even in extreme scenario, AC will have capital available for shareholders. One should keep in mind that in worst (even in extreme) scenario, AC will most likely delay some of the capex, which is normal in industry. This will also boost available capital for 2025-2026 years.
In various scenarios ‘Available Capital @ LR = 1.5’ shows that investors still (with new information) don’t have to be overly concerned. Not saying that all $3.0B (by year 2026) should be distributed but there is a very very strong case for share buy backs at such subdued prices. All this does not mean that AC should be laxed in capital allocation. AC needs to continue its focused approach on capital allocation.
In coming Qs, either economy GDP will grown or interest rates will come down to lower mortgage payments. In both scenarios, demand and yield will start to climb.
And LR target of 1.5 can also change depending on their total debt. When their total debt decrease (a lot paid off) back to pre covid days, LR target can be increased. Though better would be to keep LR < 1.5.