Bombardier Inc. T.BBD.A

Desjardins : bullish on aftermarket

[Tempo1]

From Aerospace and transportation weekly

This week, we take a closer look at BBD’s aftermarket opportunity. At its investor day in May (see our note), BBD unveiled new 2030 growth targets, including annual aftermarket growth in the mid- to high single digits through 2030 (or US$2.8–3.9b of revenue depending on share gain vs US$1.7b in 2023). Management had indicated that the business could grow at a steady mid-single-digit rate, so this is an improvement, but it appears conservative for several reasons: (1) the Street forecasts just the aftermarket segment growing by an ~8% CAGR from 202527 (recall that defence and pre-owned aircraft revenue is currently accounted for as part of aircraft manufacturing revenue); (2) from 2020–23, BBD successfully increased aftermarket market share to 46% of its aircraft (from 36%). We view the top end of the target (70% market share or US$3.9b) as achievable given Gulfstream’s aftermarket share is currently around this number. Additionally, on new deliveries, it is our understanding that BBD’s capture rate is near the ~70% threshold with its smart services/parts program. In addition to having the installed base growing every year, the mix of planes is slowly shifting more toward medium and large planes, which have higher maintenance costs than smaller planes. Over the next few years, management sees its aircraft fleet growing at a 4% CAGR from 2019–30, which represents another organic growth vector as demand for servicing should increase at the same rate. Moreover, it is fair to expect a greater need for parts and maintenance, as charter/fractional jets continue to rack up flight-hour share—these jets fly significantly more hours (~14% of these aircraft fly ~55% of industry hours). Switching to profitability, although BBD delivered a 15.4% adjusted EBITDA margin last year, the captive customer elements and scheduled inspections characteristic of OEM replacement parts and maintenance make aftermarket one of the most lucrative segments of the A&D industry (we conservatively estimate that BBD’s aftermarket business generates margins in the 23–25% range). These attractive attributes have made aftermarket supplier A&D names some of the most sought-after assets in the A&D universe, with long-time industry leaders TransDigm and HEICO trading above 20x EV/EBITDA (FY2) and two smaller firms recently going public through extremely successful IPOs (Loar and StandardAero IPOs were oversubscribed and both are now trading at above 20x EBITDA). While we do not believe BBD deserves to trade at these levels (BBD’s most bullish 2030 scenario has aftermarket exposure of only ~30%, excluding Defence and CPO), a back-of-the-envelope SOTP valuation (based on our 2025 estimates) using a 16.0x EV/EBITDA exit multiple on the aftermarket business (and maintaining 8.6x on bizjet manufacturing) results in a potential value of C$205/share, 43% higher than our current target price. To conclude, despite its recent strong performance, we remain bullish on BBD and, more specifically, its aftermarket business. The segment has the unique ability to grow organically in the high single digits without any further investment (capex of new service centres is low given leasing method used by management), with several key drivers that are set to improve—pricing, greater control of the parts supply chain, fleet growth, market share upside and scheduled inspection events, all of which should lead to multiple expansion

[Shamhorish]

did i get it right? their 2025 estimate =  potential value of C$205/share

[MyNameIsNobody]

Sham -  No, you didn't read it right.  It's an estimate for 2030.  (Unless I'm the one who didd't read it right..lol)

[Skyisthelimite]

You read right, 2025...and it makes sence, just the aftermarket division is worth at least 80$/share today (2B revs and 20% margins)

[BBDB859]

Yes that's exactly what they're saying but by 2030. Posibility is the key word, If we get a growth CAGAR of 8% continuesly. With the only acception that CPO & Defense will keep on growing faster we may see the $200 by 2025 to 2027. Which I foresee happening in the next 2 to 3 years. They've already said that in their ER, that they expect 50% of the Revs from Manufacturing &

[flightpath5]

"based on our 2025 estimates) using a 16.0x EV/EBITDA exit multiple on the aftermarket business (and maintaining 8.6x on bizjet manufacturing) results in a potential value of C$205/share"

[Letsmakemoredol]

flight, I was just going to write the same thing...$205 by 2025 agreed also says "43% higher than current target price"  = $143 (2025) * 1.43 = $204.49

[Tempo1]

While we do not believe BBD deserves to trade at these levels (BBD’s most bullish 2030 scenario has aftermarket exposure of only ~30%, excluding Defence and CPO), a back-of-the-envelope SOTP valuation (based on our 2025 estimates) using a 16.0x EV/EBITDA exit multiple on the aftermarket business (and maintaining 8.6x on bizjet manufacturing) results in a potential value of C$205/share, 43% higher