Bombardier Inc. Benoit Poirier, CFA • (514) 281-8653 • benoit.poirier@desjardins.com Michael Kypreos, Associate • (514) 985-3498 • michael.kypreos@desjardins.com Rating: Buy, Risk: Above-average, Target: C$82.00 BBD.B C$59.40, TSX Bombardier releases preliminary FY22 results—
hits deliveries out of the park! The Desjardins Takeaway: Positive
This morning, BBD unveiled its preliminary FY22 results. We calculate 4Q adjusted EBIT of US$219m (8.3% margin), above consensus of US$166m and our forecast of US$158m. Adjusted EBITDA was US $364m (13.7% margin), above consensus of US$309m and our forecast of US$315m. Total revenue came in at US$2,642m, above consensus of US$2,307m and our forecast of US$2,337m. BBD delivered an impressive 49 business jets in 4Q (we had expected 46 deliveries vs consensus of 47). The business jet backlog ended 4Q at US$14.8b, down sequentially from US$15.0b. Full-year book-tobill was 1.4x, and we estimate this implies a book-to-bill of -0.2x in 4Q. In our view, this is not a sign of cooling demand but rather a factor of the inherent seasonality of the bizjet delivery schedule (delivered 40% of FY22 planes in 4Q). Management stated last quarter that BBD is currently reaching a cruising altitude of a ~1.0x book-to-bill ratio and that it is taking a prudent approach and planning for 1.0x in 2023, which would preserve the company’s US$14.8b backlog as a margin of safety in the event of a downturn (represents ~24 months of production). More importantly, 4Q FCF (investors’ main focus) of US$169m was higher than consensus of US$119m (we had expected US$162m), driven by the stronger-than-expected deliveries in the quarter. Given the 4Q EBITDA and FCF beat, cash on hand of ~US$1.3b and the US$200m of debt paid down in 4Q (November), we estimate that adjusted net debt/TTM EBITDA ended the year at ~5.0x, or ~4.6x if we include the US$386m of restricted cash from Alstom (below our estimate of ~5.3x). The Moody’s July upgrade report for BBD stated that a financial leverage ratio below 6.0x (using gross debt instead of net debt) and sustainable FCF could lead to an additional rating upgrade. Using this method of calculation, we estimate BBD ended the year at ~6.3x—on the path to a rating upgrade in 1Q23 (BBD would experience 50–75bps in interest expense savings for each rating upgrade). BBD also announced that it has launched a new senior notes offering of US$500m due 2029 (terms not disclosed, likely below 7.5%). BBD intends to use the proceeds, together with cash on hand, to fund the redemption of all of its outstanding 7.5% senior notes due 2024, of which there is US$396m outstanding, and to finance the purchase of up to US$104m of its outstanding 7.5% senior notes due 2025. We view this as positive (extending maturity profile). JANUARY 17, 2023 1 This report was prepared by an analyst(s) employed by Desjardins Capital Markets and who is (are) not registered as a research analyst(s) under FINRA rules. Please see disclosure section on pages 2–4 for company-specific disclosures, analyst certification and legal disclaimers.