Bombardier Inc. T.BBD.A

Royal Bank : Graduation at Top Pick

[lb1temporary]

NOTE from LB1: Sorry for the late posting but I didn't had access to before.  Like Poirier of Desjardins he flag the bullish meaning of the larger deposits from new orders.

Elevating our conviction level as lower W/C needs have significantly positive valuation ramifications

Our view: Q2/22 was a materially positive event for BBD—which we believe will have significantly positive longer-term valuation ramifications. Focus here is on FCF (Q2 at +$341MM vs cons -$123MM) and the 10-fold increase to the 2022 guide (from >$50MM to >$515MM). While accelerated debt reduction is one positive, we flag this acceleration is likely even faster given the lower NWC needs as guided on the call. We view this trend as a materially positive one, enough to lift our conviction level—and we now flag BBD as one of our top stocks to own.

Key points:

Q2/22 results above expectations.

EBITDA of $201MM came in above our $186MM and consensus of $195MM. EBIT margin was solid (6.6% vs. cons 5.5%) and delivery pace on track (28 vs. cons 27). FCF was the major positive takeaway, coming in at +$341MM vs. consensus -$123MM. All told, another solid quarter for BBD.

FCF guide raised materially; other metrics also trending above.

Strong FCF generation in Q2 has led the company to meaningfully increase its FCF guide for the year from >$50MM to >$515MM. This 10x increase to FCF comes as a result of lower NWC requirements and lower financing costs associated with faster deleveraging. A very key positive driver for BBD, as we flag below.

Two key observations.

COVID has created a structural, almost windfall event for BBD—which was key given how levered the company was following the (pre-COVID) restructuring. As a result, the company is able to now materially reduce leverage in a much faster period of time ... to quote the CEO: "conditions that we thought would take seven years to materialize have occurred in two".

Second, the FCF guide is a positive, but more important is that mgmt. suggested that NWC needs intra-quarter mean the company will likely require less cash on hand, meaning a portion of the $1.4B in cash on hand can be applied to accelerate debt reduction in the near term. Since debt is the key driver (in our view) of the valuation discount, we see this accelerated deleveraging as a key catalyst for the shares.

Adjusting estimates, our conviction level increases significantly.

We are raising our forward estimates to reflect the Q2/22 actuals and new guidance (see Exhibit 1). Moreover, we are moving BBD into our top recommendations in our coverage universe. In summary, we believe BBD is on track to meet both its near- and longer-term targets. Moreover, the Q2 trends around lower NWC needs and resulting positive impact on FCF fundamentally reduces the company's risk profile. Accordingly, our target multiple remains unchanged at 5x, which still represents a 56% discount to peers—a discount we see contracting over time. Our price target goes to $41 from $32, and we reiterate our OP rating.

[Truthifest]

lb1, thx again for the analyst write-ups.  A common theme seems to have emerged that the Q2 call was a watershed moment for the company and skeptical investors.  The latter now have a green light to start getting back in/adding. 

[MyNameIsNobody]

LB1 - Is this from RBC's Walter Spracklin?  I still had him with a 56.25$ SP from 05/26? (From an article in LesAffaires) I might have missed something here, thanks again for these uodates from analysts.

[lb1temporary]

I had it from the RBC web Broker site.