Bullboard - Stock Discussion Forum Cargojet Inc T.CJT.DB.E

Primary Symbol: T.CJT Alternate Symbol(s): CGJTF | T.CJT.DB.F

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Cargojet Inc. is a Canada-based provider of time sensitive air cargo services to all major cities across North America, providing dedicated, aircraft, crew, maintenance and insurance (ACMI) and international charter services. The Company's main air cargo business is comprised of operating a domestic network air cargo co-load network between sixteen major Canadian cities and providing dedicated... see more

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TSX:CJT - Post Discussion

Cargojet Inc > RBC Report

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Post by retiredcf on Sep 28, 2022 8:58am

RBC Report

Their upside scenario target is $334.00. GLTA

September 27, 2022
Cargojet Inc.

Investor Day delivers exactly what we were looking for

Our view: CJT’s investor day provided a compelling overview of the company’s unique business model, along with impressive financial guidance provided out to 2026. The FCF guide is particularly notable in that it represents a meaningful 2026E FCF yield of 15%. Simply put, there is a significant disconnect between the defining investment characteristics of this company and the FCF yield at which its shares are trading — making this a compelling investment opportunity. We continue to rank CJT as our #1 investment idea across our coverage universe today.

Key points:
Investor Day. We attended Cargojet’s inaugural Investor Day in Hamilton, Ontario. Key points as follows:

• 2026 targets are both ambitious and achievable. Mgmt provided key financial targets out to 2026 which effectively call for almost a doubling of revenue, EBITDA and FCF ... and this is off the record 2021 level that had been fuelled by the pandemic’s positive impact to CJT's business (see Exhibit 1 for guidance details). We call out in particular the FCF guide of $320MM to $360MM. FCF was low prior to, as the company spent to build out its capacity to service the structural lift in demand that has been ramping since 2015. With 50 aircraft set to be in place by 2026, that capacity spend will have been completed - setting the stage for a significant FCF inflection, which has now been confirmed through mgmt's FCF guide. Nevertheless, the 2026E 15% FCF yield demonstrates the level to which the market has discounted this growth — creating in our mind a meaningful investment opportunity.

• The core business is fantastic - and we knew that. Mgmt outlined the key drivers that make CJT’s business model exceptional, which we outline in more detail in this report, but include: dominant domestic market share (>95%) with very high barriers to entry; secular growth through continued eCommerce penetration; and 75% pre-purchased capacity with customers, who are locked in under long-term contract (and boasting a 100% historical customer renewal rate). These characteristics underpin a unique and highly attractive business model that in our view should drive a premium multiple.

• The future opportunity is being severely discounted. While the core business is solid, there is significant concern regarding future capacity as passenger airlines reconstitute their routes. Key is that we believe the company addressed these concerns successfully at investor day, demonstrating that the international opportunity is compelling and comes with an attractive risk/reward profile. We expect the risk discount being currently factored into the stock will contract meaningfully as the company executes on its business plan outlined today, resulting in what we flag as considerable upside.