Post by
lb1temporary on Jul 27, 2022 8:08am
TD: Preview
Q2/22 Canadian Aerospace and Defence Preview
TD Investment Conclusion
Our Canadian Aerospace & Defence coverage group starts reporting calendar Q2/22 results on August 4. Our estimates are in line with consensus, with the exception of Bombardier and Hroux-Devtek, which, we believe, could report slightly better-thanconsensus EBITDA. We have revised our forecasts to reflect updated economic, currency, and interest rate assumptions along with other minor modelling updates, including commercial aircraft OEM production rate forecasts. The net impact of these updates are immaterial to our CAE estimates and target price while biasing all other targets slightly lower (Exhibit 2).
We are maintaining a SPECULATIVE BUY recommendation on Bombardier; a BUY on Maxar, CAE, and Hroux-Devtek; and a HOLD on Magellan Aerospace. Our current top picks in the group remain Bombardier and Hroux-Devtek. One of the key reasons is that the EBITDA based valuations for each are at significantly greater discounts relative to their respective comparable groups than historical averages. We believe that there is additional downside risk to all our target multiples in the event of a prolonged recession in key economies. However, at this time, based on our TD Economics based assumptions, we view our existing target multiples as prudent for 12-months from today when the equity market should have greater certainty as to the impact of economic conditions on commercial and business jet-based air travel.
Bombardier: Results are expected to reflect progress on its turnaround plan which includes declining production costs on the Global 7500, aftermarket service growth, and other cost saving initiatives. The company has sold out its 2022 delivery slots and a significant portion of 2023 slots, which include the impact of a 15-20% increase in production rates.
FROM LB1: The TD sales forecasts are 1556 M$, EBITDA at 217 M$, FCF -64 M$ and 29 deliveries