Chorus Aviation Inc. (TSX: CHR) is a Canada-based company that provides regional aviation solutions and offers a range of regional aviation support services.

Key highlights

• Collecting healthy lease revenues: The company managed to collect approximately 83% of its lease revenue from its lessees in Q4 2021, against 77% in the previous sequential quarter. These leases are generally for a fixed term, contain an absolute payment obligation on the part of the lessee, and cannot be terminated early for convenience, which reflects regular lease revenue to be recognized in the upcoming tenure also.

• Healthy cash flows from operations: In FY 2021, period the company clocked positive cash flows from operations of CAD 184.9 million compared to CAD 156.6 million in the previous corresponding period. The increase was primarily due to higher adjusted EBITDA in the tenure and changes in working capital related to higher accounts payable.

• Industry beating margins and strong cash flows: The Company maintained its pace and witnessed spirited performance across its margin matrix. In addition, the management’s solid determination helped them leap the industry median margins on many fronts in Q4 2021, which exhibits the competitive advantage of the company within the industry. The chart below gives a glimpse of this. 

Source: REFINITIV, Analysis by Kalkine Group

• Ventured into cargo market: The addition of cargo contract flying to the company's capabilities is quite exciting. The cargo sector is seen as a potential development area that will benefit from the success of e-commerce, and the organization is delighted to be a part of it. We believe this initiative has the potential to open up new cash flow channels. It just signed a three-year contract for air cargo charter services with Purolator.
  

Risks associated with investment

Further extension of restrictive measures to contain Covid-19 pandemic would dampen the group’s performance. Moreover, the company may witness a headwind from lower passenger footfalls. Additionally, the company has a huge burden of debt, which implies a balance sheet risk. 

Financial overview of Q4 2021

Source: Company Filing 

• In Q4 2021, the operating revenue increased 58.8% to CAD 346.5 million, compared to CAD 218.1 million in pcp. Increased revenue in the RAS segment was attributable to the increase in Controllable Cost Revenue and Pass-Through Revenue as a result of increased flying activity.
  

• Total operating expenses increased to CAD 309.9 million compared to CAD 219.3 million in Q4 2020, primarily due to higher salaries along higher engine overhaul maintenance, partially offset by lower impairment and expected credit loss provisions.

• Operating income for the reported period stood at CAD 36.5 million, against a loss of CAD 1.2 million in the previous corresponding period.

• The company reported a net income of CAD 10.1 million in the reported quarter, CAD 9.1 million, partially offset by higher interest expense and higher income tax.

Valuation Methodology (Illustrative): EV to EBITDA

Analysis by Kalkine Group

Stock recommendation

To re-energize its financial flexibility, the firm proactively managed its liquidity through successful capital offerings and lowered its net debt by roughly CAD 240 million, or 12%. In addition, freshly won specialized contracts and new aircraft leasing agreements aided in the organization's strengthening. Even though airlines throughout the world are still struggling to return to pre-COVID-19 financial levels, the company's fourth quarter results were positive. Additionally, because of the rise in e-commerce, the company has entered the cargo contract flying area, which we anticipate will offer new cash flows. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating at the current market price of CAD 3.76 at 9:57 AM Toronto Time on March 14, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 14, 2022). Source: REFINITIV, Analysis by Kalkine Group 

   Technical Analysis Summary

Disclaimer

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