Bombardier Inc

Bombardier Inc (TSX: BBD.B) is an industrial engineering company, which provides services like manufacturing of trains and planes. The Group’s operations are divided into two reportable segments being transportation and aviation. The Company operates globally through its subsidiaries, which include Bombardier Transportation Canada Inc, Bombardier Transportation Australia Pty Ltd, Bombardier Mass Transit Corporation, Bombardier Transit Corporation, Learjet Inc, Bombardier Services Corporation, Bombardier Aerospace Germany GmbH and Bombardier Aerospace Corporation.

Key Highlights:

• Bombardier confirmed the addition of jet portfolio, the Learjet 75 Liberty light jet and is now in service with the first delivery to long-time Learjet operator Alex Lyon & Son, a US based auctioneering firm.
• On October 01, 2020, the group announced that it had begun the process of streamlining its senior leadership team as it intends to a pure-play business jet company. Keeping the above goal, the company let go David Coleal from the post of Bombardier Aviation president role.
• Recently, the company announced its intention for share purchase agreements with each of Lufthansa Technik AG and ExecuJet Aviation Group AG wherein the company will acquire all of the issued and outstanding shares of Lufthansa Bombardier Aviation Services.

Q2FY20 Financial Highlights: BBD.B reported a 37% y-o-y decline in its second quarter FY20 revenue at USD 2,702 million, due to a setback from the suspension of key Aviation and Transportation sites across North America and Europe. The company reported an adjusted EBITDA loss of USD 319 million, as compared to a profit of USD 312 million, a year ago. Net loss widened to USD 223 million, against a net loss of USD 36 million in Q2FY19. Free cash flow took a significant hit and stood at negative of USD 1,036 million, as compared to an outflow of USD 429 million in pcp.

Q2FY20 Financial Highlights (Source: Company Reports)

Risks: The company witnessed a decline in the free cash flow on account of operational hindrance due to the shortfall in deliveries coupled with significantly lower advances related to the low order intake environment. Continuation of the above trend would hinder the company’s operation.

Stock Recommendation: The stock of BBD.B plunged ~82% so far this year, as the company faced severe hindrance in the aviation segment, due to the tepid aircraft order intake, which eventually drags the company’s operating performance. To match the current operational level, the company has reduced its workforce by 2,500 employees. Notably, the stock is trading at the lower band of its 52-weeks trading range of CAD 2.19 and CAD 0.40, respectively. Due to the current travel-ban across the globe, the outlook of the aviation has become challenging which would impact the order book of the aircraft manufacturers in the coming days. On the valuation front, the stock is trading at a forward EV to EBITDA multiple of 9.2x, which is inline with the industry (aerospace and defense) median of 9.2x.  Looking at the aforesaid facts, price levels, we prefer to remain skeptical on the prospect and hence give an ‘Avoid’ rating on the stock of at the closing market price of CAD 0.34 on October 9, 2020.

BBD.B Daily Technical Price Chart (Source: Refinitiv, Thomson Reuters)

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