Bombardier Inc. T.BBD.A

CIBC: Service, a strong driver for BBD

[Tempo1]

From CIBC Transportation & Aerospece weekly.
BBD Flight Activity Outperforming The Industry
Key Points

While business jet traffic continues to be strong and is trending well above pre-pandemic levels, it is down Y/Y which has weighed on investor sentiment towards the sector. For example, WingX noted recently that business jet departures globally grew 21% in June compared to 2019 but were down 4% compared to a year ago. We also track business jet flight activity through RadarBox and it shows a similar trend – activity is down 2% Y/Y through July 27 but up 30+% versus 2019. Looking at BBD’s aircraft flight activity though, it is outperforming industry trends. Its flight activity is up 2% Y/Y YTD and is up 30% versus 2019. Looking at the month of July, it was the only business jet OEM tracked by RadarBox to post Y/Y growth, up 2%. For reference, the industry total was down 2% Y/Y in July and the other OEMs were ranging from flat (Embraer) to down 9% Y/Y (Falcon).

The RadarBox data supports our view that BBD's service revenue should continue to perform well.
Looking at BBD's business aircraft flight activity versus its Service revenue going back to 2019, there is a 78% correlation. BBD's target is to hit US$2B of Service revenue by 2025 with expectations of generating US$1.6B – US$1.7B in 2023 through 1) an increase in market share related to servicing BBD aircraft (targeting 50% from 35% back in 2020) and 2) an increase in service capacity.

Looking at these two drivers, on the former, BBD sees the available size of aftermarket revenue growing from US$2.8B in 2020 to US$4.0B in 2025. On the latter, BBD added over 1MM gross square footage to its network last year and now has service centres and available capacity in key markets. We would also note that the company generated US$424MM in Service revenue in Q1/23. Annualizing this suggests BBD is tracking towards the upper end of its Service revenue guidance for this year and is in a position to exceed its 2025 targets.

The growth in BBD's Service revenue helps diversify BBD’s earnings while also being higher margin. This along with the company's focus on expanding its Defense revenue should help reduce BBD's earnings cyclicality through the business jet cycle.

[clubhouse19]

Their traders' desks think differently as they are on top of the list for the sell side in the last 20 days.   analysts's forecast is totally unattached from trading activity and  IMO should not be followed unless totally on the long side and should stay away from trying to predict daily price movements. They are 2 different entitities with different agendas. 

[Tempo1]

Question?: How do you differentiate between the bank's trades (for his own account) and the client's trades (by the way of the bank desk)? On the TSX web site there the list of the 110 members who can trade. For CIBC there's only 1 code (#079)

[clubhouse19]

Banks and institutions, like Cibc also trade for their own benefit (propriety trading)   As far as I know. They use their own broker code or also could go under 001 to obfuscate their trades.    I think a smaller portion of their revenue comes from earning commission from client based transactions.

[Tempo1]

Yep, they do propriety trading. But do I understand that you think that they have more transactions from propriety trading than for their clients ?  And you deduct from the bank's code volume (#079 for CIBC) that the bigger part is for their own account ?  Anyway, I agree that the analysts opinion does not create an obligation for the whole bank. If so, they would have to submit

[clubhouse19]

Yes I do think that and most of it if not all under 001. They also use it to create inventory for their shorting activity as I have noticed that much of the activity within 001 is to control pricing rather than institutional buying or selling.    Just like in there retail sector...they siphon as much as they can from the individual whether it be a retail trader or banker.   Direct