Solid quarter sets the stage for strong end to 2023 and excellent momentum into 2024
Our view: The market is reacting very favourably to BBD's strong Q3 results. By all measures, the company is set to exceed its own 2023 guidance on virtually all metrics. This strong result (both on an absolute basis and relative to its peers) stands in stark contrast to the company's (in our view) severely discounted valuation (stock was down 40% off its March highs going into this quarter report). So despite the move today, we see significant further upside potential from here. Reiterate OP rating.
Key points:
• Q3/23 beat. EBITDA of $285MM (+36% y/y) was above consensus $261MM (RBC: $256MM) as the company had a nice beat across all key metrics of revenue, margins, EBITDA and FCF. Revenue of $1,856MM (cons $1,731MM) was driven by strong aircraft pricing (as deliveries of 31 aircraft was right in line). This pricing, the full margin effect of the Global 7500, and the strong Services contribution, all led to higher margin at 15.4% (cons 15.1%). FCF also came in above at $80MM (cons $35MM) while book to bill was solid at 1.1x.
• Management expecting to meet or exceed guidance. With the strength of Q3, we see mgmt as easily being able to exceed 2023 guidance on most metrics - particularly revenue, margins, EBITDA and EBIT. Furthermore, with significant deliveries expected in Q4, together with the release of associated inventory build through the year, the company is setting up for a very strong FCF quarter in Q4 (>$600MM). We caught up with mgmt after the call where they relayed that orders also have a degree of seasonality, along with a healthy pipeline point to a BTB of 1x for the year. Further, the momentum the company is enjoying should result in a good trend and set-up into 2024; which based on our estimates means that the 2025 (multi-year) guide is also looking increasingly "conservative" as well.
• Estimates higher (again). On the back of a very strong Q3 print, our 2023 estimates move higher and are above guidance on most metrics (see Exhibit 4). We are holding our 2024 and 2025 estimates intact for now, pending the company's release of its 2024 guidance when it reports its Q4 in February. Reminder the company also has 2025 guidance (which is the multi-year guidance it set in place in 2021 and revised higher in early 2023). We see upside potential to the 2025 guidance at the company's next investor event (date TBD).
• Stock really cheap. While the stock is spiking over 10% today, it has languished since hitting its recent high in March of this year. This poor share price performance since March (today's move aside) is fundamentally unwarranted in our view. At current levels, the stock is trading at ~5x EV/EBITDA on a 2025E basis, or a ~50% discount to peers. Our target multiple of 6.5x is based on a ~35% discount to peers and results in a PT of $98. Reiterate OP rating.