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Bullboard - Stock Discussion Forum Air Canada T.AC

Alternate Symbol(s):  ACDVF

Air Canada is an airline company. The Company is a provider of scheduled passenger services in the Canadian market, the Canada-United States (U.S.) transborder market and the international market to and from Canada. It provides scheduled service directly to more than 180 airports in Canada, the United States and internationally on six continents. The Company’s Aeroplan program is Canada's... see more

TSX:AC - Post Discussion

Air Canada > AC: Correlation between net debt, leverage ratio & stock pri
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Post by Rouge10 on Feb 29, 2024 3:34pm

AC: Correlation between net debt, leverage ratio & stock pri

It’s a matter of time. With every passing Q, as financial performance builds up (and surpass any of the previous results), stock price will go up. Below is the story since 2012, when AC started the new chapter; 6th freedom expansion, fleet upgrades (high capex), Aeroplan/Credit card, international expansion, etc… 
 
Year                Net Debt       EBITDA        Leverage ratio       FCF              Stock price
2012                  $4.25B            $1.45B            3.0                     $0.19B                  $2.X               
2013                  $4.35B            $1.43B            3.1                    -$0.23B                  $7.5
2014                  $5.13B            $1.67B            3.1                    -$0.55B                  $12.X
2015                  $6.3B              $2.53B            2.5                      $0.21B                  $10.X
2016                  $7.0B              $2.77B            2.5                     -$0.15B                  $14.X
2017                  $6.2B              $2.92B            2.1                      $1.06B                  $26.X
2018                  $5.86B           $2.85               2.0                      $1.30B                  $26.X
2019                  $2.9B             $3.67B            0.8                       $2.08B                 $50.X
2020                                COVID                   v high
2021                                COVID                   v high
2022                 $7.5B              $1.5B               5.0                     $0.8B                    $20.X                 
2023                 $4.6B             $3.97B             1.1                     $2.75B                $18.X
2024 Q1           $3.7B              $4.1B              0.9                 >$2.5B (TTM)            ??
2024 Q2           $2.9B              $4.2B              0.7                 >$2.5B (TTM)            ??

2025, 2026  will keep leverage ratio <0.8 , net debt low enough and FCF large enough to give the boost to sp. 
 
 
Historical Note:
  1. In initial years, FCF was negative to 0 because of high capex for fleet upgrades with relatively low EBITDA. In those years, lower EBITDA restricted FCF because of high capex.
  2. Now the story has evolved, AC has expanded, revenue has almost doubled, and debt levels are similar to the ones in 2012. Ability to generate large EBITDA and FCF is much stronger than ever before.
  3. In 2016, stock price was ~$15 even with negative FCF and leverage ratio of 2.5. Not because of weak financials but cash flow was not sufficient to fund high capex. That happened because airline was much smaller than today with limited ability to generate cash.
  4. From 2017-2019 AC produced $4.0B FCF and reduced net debt (and leverage ratio) to record low levels.
  5. COVID was an unfortunate event, but AC has recovered since then and is in a much stronger position than ever before.
Going forward:
  1. In few weeks, net debt and leverage ratio will be at record low levels with record TTM FCF numbers.
  2. As per the CFO, expect substantial sustainable annual FCF even in the high capex years (2026).
  3. Today’s AC is much larger, stronger with diverse revenue (6th freedom focus, credit card, international focus, young fleet, low interest cost (70% is fixed), new technology, insourced loyalty (Aeroplan), etc…) . AC can generate large FCF to fund high capex with cash from operations.
  4. This operating model will give a very sound base to AC to produce large FCF, which will be used to return capital to shareholders, even after funding the capex.
  5. It is just a matter of time when stock will surpass pre-covid market cap.
Comment by JuIieRichards on Feb 29, 2024 4:22pm
Pin this factual post on EBITDA, FCF and Debt progress, 2012 to Now: https://stockhouse.com/companies/bullboard/t.ac/air-canada?postid=35907389  
Comment by Rob8043 on Feb 29, 2024 4:36pm
This post has been removed in accordance with Community Policy
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