CAE Inc

CAE Inc. (TSX: CAE) is a global company focused on delivering training for the civil aviation, defense, security, and healthcare markets. Multiple types of simulators and synthetic exercises may be sold to customers to serve as alternatives for live-training experiences.

Key Updates:

• Increase in the backlog: The company reported a 6% y-o-y growth in the backlog of CAD 8,827.9 million in Q3FY21 despite the sluggish economic scenario. The above is impressive as a higher backlog denotes greater revenue visibility.
  

• Positive technical: On a daily chart, the CAE stock is trading near the lower range of the 20-days Bollinger band, which indicates a possible up move from the current level. Moreover, the 14-days RSI is trading lower at 37.17, which also suggests a possible upside from the current level.

Source: REFINITIV, Analysis by Kalkine Group

• New acquisition update: Recently, the company reported its acquisition of Sabre's AirCentre airline operations, which offers flight and crew management and optimization solutions at a price consideration of ~USD 392.5 million. The above is expected to enhance the company’s customer base across the digitally enabled flight and crew operations segments.

Q2FY22 Financial Highlights:

• CAE declared its second quarter results, wherein the company posted revenue of CAD 814.9 million, climbed from CAD 704.7 million in the previous corresponding period (pcp). The surge was primarily driven by strong momentum from the Defence and Security segment (CAD 417.9 million v/s CAD 303.2 million in pcp).
• Gross profit was posted at CAD 227.6 million, jumped from CAD 191.0 million in Q2FY21, due to higher revenue, partially offset by higher cost of sales.
• The group’s operating income stood at CAD 39.2 million, as compared to CAD 28.2 million in Q2FY21. The quarter witnessed an increase in selling, general and administrative expenses coupled with higher research & development expense.
• The quarter turned profitable and reported a net income of CAD 17.2 million, as compared to a net loss of CAD 6 million in the previous corresponding period (pcp).

Q2FY22 Income Statement Highlights (Source: Company Report)

 Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

The company reported its operating income of CAD 125.4 million in H1FY22, as compared to an operating loss of CAD 82.1 million in pcp. The above is impressive and indicates higher operational efficiencies. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Calian Group Ltd, Triumph Group Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of CAE at the last traded price of CAD 35.68 on November 18, 2021.

One-Year Technical Price Chart (as on November 18, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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