Bombardier Inc. T.BBD.A

Optimism by Poirier at Desjardins

[Tempo1]

From Recap of the week : transportation and aerospace oct 16

This week, we take a closer look at BBD ahead of the NBAA (October 22–24 in Las Vegas) and its 3Q results (on November 7), and following the stock’s 109.3% ytd rally (vs 21.9% for the S&P 500). At 3.5x leverage and a beta of 2.03, and given the bizjet industry’s reliance on financing, BBD shares have been a prime beneficiary of the pivot to an interest rate-cutting environment, easing access to capital and more risk-on capital markets sentiment (see our interest rate sensitivity analysis). Moreover, BBD’s bonds issued in June at a 7.0% coupon are now trading at a YTM of only 6.5%. The speculative bonds of fleet operator customer VistaJet, which traded as high as 14% in July, are now down to 10.3%. However, BBD is far from just a macro/factor rotation play, as the fundamentals of its bizjet business and end markets remain healthy. Although bizjet activity in the US has fluttered in recent weeks due to the impact of the hurricanes and the approaching election, the FAA’s latest report for August shows that bizjet flight activity on a TTM basis is down only 0.7% yoy and is holding strong at 12.6% above pre-COVID-19 levels (2019). Activity in Europe, according to the EBAA, is actually up 1.5% yoy. From a segment perspective, according to WINGX’s latest market update, fractional fleet operators remain the best performers by far, soaring 10% yoy. We view this as a positive for BBD as it is best positioned among the long-range OEMs. BBD derives ~20% of its backlog from fleet customers whereas Gulfstream and Dassault have little exposure. Finally, on the execution front, BBD was the only bizjet OEM to beat consensus for deliveries in 2Q, which further demonstrates that BBD continues to successfully mitigate supply chain risks (benefiting from its now pure-play focus). With Boeing’s work stoppage entering its fifth week, reports that Airbus will likely downgrade its plane delivery target, the issues at supplier Spirit (not related to BBD) and accounts that Gulfstream’s G700 deliveries have fallen behind (reportedly delivered only three in 3Q vs 11 in 2Q), we view BBD’s outperformance vs the A&D sector as quite staggering. Flawless execution as of late deserves multiple expansion, in our view (still trading at a 35% discount to bizjet peers at only 6.8x EV/EBITDA FY2).

Furthermore, aerospace industry data sources reportedly forecast that BBD deliveries will exceed consensus of 30 in 3Q (we forecast 28). ( Note from Tempo: our own source too).This could translate into stronger-than-expected FCF in 3Q while also derisking the seasonal 4Q delivery ramp. We currently forecast that BBD will deliver 64 planes in 4Q, accounting for 42% of its annual deliveries; however, we would highlight that the company is no stranger to this type of situation, given it has occurred many times in the past (for reference, last year BBD delivered 56 units in 4Q, or 41% of annual deliveries of 138). To conclude, we remain positive on the BBD story despite the run-up in the share price. We will be closely monitoring the upcoming NBAA as the event has been an order catalyst for bizjet OEMs in the past. However, this is less likely this year as OEMs have pulled back resources and want to concentrate on private customer events. Gulfstream and Dassault will not be exhibiting this year.

[Snowey]

Thanks for sharing this Tempo1. Very encouraging.   Good luck to all   Snowey

[BBDB859]

Thanks for this Temp as usual. I have to say that giving a multiple of 18 is rich. But I'm still good with a 10X multiple. of its peers. And if Desjardins thinks that, we are 35% undervalued still fom our peers? Then we have another current SP evaluation $110.00 X 35% = $38.50 + $110 = $148.50. I'm good with $150.00. Which just goes to show how manipulated the SP is. I have to say that,

[Letsmakemoredol]

BBDB859, I've never seen you use FCF multiples before so why do you say that multiple is rich?  I am searching thru multiple ways to find a true valuation of BBD, one of many is Gulfstream.  Also remember Gulfstream is having problems with supply chain and deliveries right now plus G800 certification.  All I know is my fair valuation of BBD is over $200.  If yours is $150

[BBDB859]

What are you talking about Letsmake? The Valuation I showed on this board on the weekend was using the current EBITDA. If you were here on this board long enough, and you know me? You would know that I love using FCF because it's clearer. FCF is what I'm used to using and I even use +FCF which is NET NET (All expenses & interest) to the company. And the 18 X multiple used even on

[Letsmakemoredol]

BBDB859, I think there has been come confusion and have to make it quick, its almost dinner time here on the west coast lol. First I don't really know you, I've only been here what 1-2 weeks?  I do like your numbers thou and trust your #s, no issues.  Together we've only used EV/EBITDA, we've never talked about FCF multiples.  Anyway, I have never suggested 18+x EV

[BBDB859]

I get what you are doing. It's hard enough though trying to stay with Analysts realistic  presesnt time predictions that are according to market realities. The more I do the numbers the more I realize how much this SP is suppressed. Having said all ,that let's see whether the technical graphs will be of any help on future SP trends. I suspect they won't. This stock's SP is

[Letsmakemoredol]

BBDB859, I don't think there is a perfect one size fits all answer hence why I like to look to valuation from as many different angles as I can, technicals are also just one aspect of that.  I will say its extremely difficult to trade BBD from a technical perspective mainly because the average volume is so low.  I do use long term trends, the biggest one for me being the daily 50 MA

[BBDB859]

Not to worry. I understand. I don't have the time today I'm just too busy.