Bombardier Inc. T.BBD.A

TD: lowest valuation in 10 years and 25% FCF yield 2025

[Trooper01]

We have updated our forecasts to reflect the 2030 Senior Notes issue, redemption of 2025 Senior Notes, partial redemption of 2026 and 2027 Senior Notes and other minor modelling updates.

Impact: NEUTRAL

We are maintaining our C$100.00 target price and BUY recommendation. Our updated estimates reflect the recent debt refinancing, updated FX, interest rate, and industry assumptions, along with other minor modelling updates.

We view the debt refinancing as prudent de-risking of the company's maturity profile, which now has a 4.5-year weighted average term-to-maturity vs. 4.0 years previously. The next maturity is now June 2026, and we estimate that Bombardier will generate sufficient FCF to repay the next maturity without requiring additional capital.

Our view of Bombardier remains unchanged. We believe that the valuation fails to reflect the execution, franchise strength, growing FCF, deleveraging, and earnings resiliency to economic forces in 2024 and 2025. We believe order activity should remain strong through year-end, although a Q4 b:b below 1.0x should not be surprising, given the strong deliveries anticipated for the quarter. We believe Bombardier's high-quality, multi-year backlog and aftermarket revenue opportunity provide downside protection to earnings in the event of a slowdown in order activity. We believe Bombardier can continue to generate greater than $6.00 of annual FCF through the second half of the decade in spite of any requirement for investment in a new clean sheet aircraft.

Bombardier is trading at 6.2x forward EBITDA, in line with its lowest valuation in 10 years despite its significant financial, operational, and strategic progress. For investors who question the overall civil aerospace/private jet cycle, we note that Bombardier's relative valuation is also in line with the lowest in 10+ years vs. A&D comps and a group of high-end luxury company valuations. The share price represents an FCF yield of 18% on our 2024 estimate and 25% on our 2025 estimate.

TD Investment Conclusion

We believe that Bombardier's business aviation franchise is strong and that the declining financial leverage, backlog, production plans, and free-cash-flow visibility justify a higher share price.

[clubhouse19]

  Good to see but he is lacking to mention growth of offerings such as defence which IMO will be critical and whatever else they may come up with.

[BBDB859]

Does anybody understand what the TD is saying here?????? "We believe Bombardier can continue to generate greater than $6.00 of annual FCF through the second half of the decade in spite of any requirement for investment in a new clean sheet aircraft." What's this $6.00 FCF??????? Then he goes on to say. "Bombardier is trading at 6.2x forward EBITDA, in line with its lowest

[balmusette]

Just a guess here, Maybe $6.00 a share, 95.5 million shares X $6.00 : $573 millions FCF

[Nordico]

Not sure what you're asking as the statement is self-evident. They expect Bomber to be able to generate >$6 USD of free cash flow per year from 2025 onward. Current SP is a measly 6.2 times forward twelve months' projected EBITDA, which is absurdly undervalued.

[Tempo1]

I read the full report this morning. very positive. I buy the 2023-2025 explanations but for the second half of the decade, he didn't give any numbers. He could be right. ..... But there is no indication yet of the Bomber strategy for the post 2025 period and especially for the costs associated with it.  Martel disclose that they are stil developing the military side of the business for

[MyNameIsNobody]

Tempo1 - I'm with you on the absence of an official plan past 2025.  It's just my opinion but I believe they will not wait for 2025 to underline what the next plan is or is going to look like.  We'll hear about it sooner than later in 2024. I'm sure analyst will ask questions about this during Q4 in february.

[BBDB859]

I'm with you nobody. They're going to have to update their plans. They FCF/EBITDA will change drastically in 2024.

[PabloLafortune]

Hi 859, I'm not sure about the 6.2x forward EBITDA and the 10 years comparison but for the FCF, he's talking about EBITDA less capex less interest x share count for 2026 and beyond.  So 95M shares x $6 = $570M.  If revenue is $9B, and EBITDA is 15% or $1.35B, interest (and pref divi) perhaps $350M, and capex $400M, that's $600M left over that is "free". Free for

[BBDB859]

Thanks Pablo, I appreciate this. I have no mileage here, I'm using YM, so once I put in some mileage, it May Vary with theirs. I will do the math now, to see if it varies. Experience is gained sometimes.This is the first time that TD did their analysis this way, that I've seen. So I needed to get someones knowhow, that's a knowledgeable Trader, and familiar with Institutional

[BBDB859]

Hi again Pablo. I just did a quick calculation using your Gross $9B Revs. I presume you're looking at 2025. If that's the case. Then TD is not only conservative they're out to lunch with $6.00. It will be closer to $9.00. I used about 17% Margins, which were given to us by BD. Then I used $250M in Capex, because that's the number EM used going forward in 2024/5. We have finished

[PabloLafortune]

859, yeah I had to use conservative #'s to match up with TD, lol. TD is risk averse, thats how they roll. A target that is almost double the current price must be on the outer edge of their analyst universe. And  you can't entirely blame them - Bombardier has no track record yet of generating that kind of operational cashflow.