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:

• Acquisition update: On March 01, 2022, the company reported acquisition of Sabre Airline Operations at an enterprise value of USD 392.5 million. This would enhance the company’s offerings within the technology and intellectual property segment. Additionally, it would allow the company to cater to the digitally enabled flight and crew management and optimization services, which would subsequently result in value addition value for its customers.

• Increase in cash flows: In 9MFY21, the company reported a surge in it cash from operations at CAD 211.4 million, higher than CAD 192 million in pcp. A higher cash flow denotes a higher liquidity for the company, which is a key positive.

• Higher profitability margins: At the end of Q3FY21, the company reported its EBITDA margin and operating margin of 20.4% and 7.7%, respectively, as compared to the industry median of 13.4% and 7.2%, respectively. This indicates better cost management on an operational level.

Q3FY22 Financial Highlights:

Q3FY22 Income Statement Highlights (Source: Company Report)

• CAE announced its quarterly result, wherein the company posted its income of CAD 848.7 million, improved from CAD 832.4 million in pcp. The improvement was primarily driven by an impressive performance from the Defence and security segment, partially offset by sluggish performance form the Civil Aviation Training Solutions segment.
• Cost of sales stood at CAD 606.2 million, which is at par with CAD 603.5 million in pcp. Gross profit stood higher at CAD 242.5 million, as compared to CAD 228.9 million in pcp, thanks to the increased topline.
• The quarter was marked by higher selling, general & administrative expenses coupled with a surge in the restructuring, integration and acquisition costs, partially offset by lower research and development expenses. Operating income slide to CAD 65.5 million from CAD 82.9 million in pcp.
• The company reported its net income at CAD 28.4 million, as compared to CAD 49.7 million in pcp, due to lower operating income coupled with slightly higher finance expense and an inclusion of income tax.

Valuation Methodology (Illustrative): Price to Earnings-based

Analysis by Kalkine Group

Stock Recommendation:

At the end of Q3FY22, the company reported the order backlog of CAD 9,177.2 million, which is 17% higher than Q3FY21. An increase in backlog suggests a possible rise in future revenue.  The stock has been valued by using the Price to Earnings based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Mercury Systems Inc, Triumph Group Inc etc., for the purpose. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 34.60 on March 01, 2022.

One-Year Technical Price Chart (as on March 01, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.