Continuing to execute well Our Conclusion
BBD reported better-than-expected Q2 results and reinforced our positive
view on the name. It continues to execute well and increasingly gives us
confidence in achieving its medium- to long-term financial targets. We have
made minimal changes to our 2024 and 2025 earnings estimates. Our price
target moves from $102 to $116 and we maintain our Outperformer rating.
Key Points
Continuing To Execute Well: BBD continues to execute well. It delivered
39 aircraft in the quarter, up 10 units Y/Y. This is despite the ongoing supply
chain challenges, which the company noted have not deteriorated versus
what it had assumed earlier this year. With BBD targeting 150-155 aircraft
this year, it expects to make up for the impact of the ~11-day strike at its
Global facility in Toronto. We believe Q2 results significantly de-risk its ability
to hit its 2024 targets. BBD has hit ~39% of this year’s delivery target already
through H1/24, versus 37% the same time last year, while expecting to
deliver 12 more units Y/Y. While BBD noted it saw some deliveries pulled
forward from Q3, we suspect investors would rather see BBD deliver more
aircraft earlier in the year. In addition, BBD’s service revenue was $507MM
in the quarter, which means the company has achieved its $2B in service
revenue target a year early. Lastly, despite delivering more units in Q2 than
were expected, BBD maintained a book-to-bill of 1x exiting the quarter,
highlighting that underlying demand remains healthy. BBD’s performance
through H1/24 drives increased confidence around its ability to hit its longerterm targets, which we argue will drive significant equity upside in the name.
Significant FCF Generation Visibility: With BBD holding its operational capex to ~$300MM a year post-2025, this positions the company to generate
~$7B in cumulative FCF over the next six years. We think the company is
capable of generating more than $1.4B of annual FCF by 2030. If we apply
an FCF multiple of 10x to this, it would imply an undiscounted equity value
per share of ~$200. This would imply a ~20% CAGR in BBD’s equity value.
Uses For Excess FCF – Potential Near-term Catalysts: Given the FCF
generation potential, BBD laid out its capital allocation framework beyond
2025. This included looking at inorganic opportunities (still focused on
business aviation sector, but adding capabilities with potential opportunities
in services and defense), continuing to deleverage the balance sheet,
potentially looking at derivative aircraft which would be low risk, and returning
cash to shareholders. Moving toward investment-grade debt and
implementing a buyback/dividend would go a long way to improving investor
interest/sentiment in BBD. The key message on capital allocation was that it
plans to remain disciplined and predictable. This includes minimizing swings
in its capital budget through a cycle.