National Bank note
They target $3.85
Clean balance sheet post-leasing unit sale
In late July, Chorus Aviation announced the sale of its Regional Aircraft Leasing
(RAL) segment for a total value of $1.9 billion including $825 million in net
cash. Chorus intends to use the cash proceeds from the sale to repay all the
debentures on its balance sheet, pay down its operating credit facility and
redeem all the outstanding preferred shares. The only remaining debt will be
related to aircraft leased into the CPA.
Predictable cash flows support higher valuation
Following the transaction, only the Regional Aviation Services (RAS) segment
will remain, consisting of the fixed fee capacity purchase agreement (CPA)
with Air Canada (that has contracted cash flows that run out to 2035) and the
company's growing Voyageur Aviation subsidiary. In our baseline sum of parts
DCF scenario for the CPA cash flows, which assumes only enough planes are re-
leased to maintain the total number of aircraft operating within the CPA at the
minimum 80 level, plus our conservative value for Voyageur, we derive a per-
share value for Chorus of $3.65, a ~33% premium to the current share price.
Stock trading below our downside scenario
In our (unlikely) downside scenario in which we assume none of the 48 planes
currently leased into the CPA (generating leasing revenue) are re-leased either
back into the CPA fleet or to a third party, we derive a per-share value for the
company of $3.28, still a ~20% premium to the current share price.
Maintain Outperform rating
As we await the sale of Chorus's leasing segment, we continue to value Chorus
shares by applying a 5.0x EV/EBITDA multiple to our 2025 EBITDA forecast
resulting in a $3.85 target. However, we see potentially material valuation
upside based on our sum of parts valuation. We therefore maintain our
Outperform rating.
The note does a pretty good job of saying that even in an extreme downside secnario, there is still upside in the shares. Of course, they may underestimate management's ability to do a stupid M&A deal