Chorus Aviation Inc. (TSX: CHR) is a Canadian holding company, which aims to deliver regional aviation to the world through its businesses. The group specializes in contract flying, maintenance, repair and overhaul, and aircraft leasing solutions. The company operates in two segments namely, Regional Aviation Services and Regional Aircraft Leasing.

Key Updates:

• Recent Acquisition to add meaningful prospect: Recently, the company reported the acquisition of Falko Regional Aircraft Limited, which is a full-service provider in regional aviation with unique capabilities. This acquisition is expected to establish Chorus as one of the world's largest aircraft with a portfolio of 348 regional aircraft and an aggregate value ~USD 4.5 billion. This is expected to broaden the company’s horizon covering the full age spectrum of regional aircraft from new deliveries to mid and end-of-life aircraft.  
  

• Growth from the Regional Aviation Service segment: The company derives its majority income from the Regional Aviation Services segment, which reported a solid growth, due to an increase in the flying activity in Canada on account of relaxation of travel restrictions. Notably, in Q1FY22, total revenue grew 69.1% on y-o-y basis to CAD 342.3 million. This has resulted to strong growth in performance metrics too. The company’s operating income stood at CAD 43.3 million in Q1FY22 v/s an operating loss of CAD 36.8 million in pcp. Moreover, the company’s cash flow from operations also grew to CAD 41.5 million in Q1FY22 from CAD 38.2 million in pcp.

• Ample liquidity to Support Upcoming Operations: At the end of Q1FY22, the company reported total liquidity in excess of CAD 100.0 million of which ~50% is available under liquid assets. The remainder consisting of available credit under its Operating Credit Facility along with USD 30.0 million unsecured revolving operating credit facility. We expect this liquidity to remain for the rest of FY22 and would likely to support the company’s operations during harder times.
  

Risks Associated with the investment:

Any restriction imposed due to COVID 19 or due to other macro situation would lead to lower passenger traction and would dampen the company’s top-line. Moreover, rise in oil prices would adversely impact the company’s margins.

  Key Financial Highlights: Q1 FY22

Q1FY22 Income Statement Highlights (Source: Company Report)

Q1FY22 Financial Highlights:

• In Q1FY22, CHR reported operating revenue of CAD 342.3 million, which is higher than CAD 202.4 million in pcp. The growth was driven by a strong traction from Regional Aviation Services.
• Total operating expenses stood at CAD 299.0 million v/s CAD 239.3 million in pcp, due to higher Salaries, wages and benefits and an increase in Airport and navigation fees. The group reported an operating income of CAD 43.3 million, as compared to an operating loss of CAD 36.8 million in pcp, supported by elevated revenue as mentioned above.
• The company reported a net profit of CAD 22.9 million v/s a net loss of CAD 38.0 million in pcp, supported by higher operating income and lower interest expense. This was partially offset by an inclusion of income tax expense of CAD 4.8 million v/s an income tax recovery of CAD 18.9 million in pcp.

   Valuation Methodology (Illustrative): EV to Sales based

   Analysis by Kalkine Group

Stock Recommendation:

The company reported a solid revival in its operations and posted strong performance as demand for passenger air travel continued to show improvements during the first quarter of 2022 on account of increasing vaccination rates and the relaxation of travel restrictions. Moreover, with the recent acquisition of Falko, the company is looking for new opportunities for growth, through increased access to growth capital and a differentiated business model to maximize returns on aircraft assets.

We have valued the stock using the EV to Sales based relative valuation approach and arrived at a target price, which suggests a double-digit upside potential (in % terms). For the said purpose, we have considered peers like CAE Inc, Southwest Airlines Co etc. Hence, considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the last closing price of CAD 3.59 on May 10, 2022. 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 May 10, 2022). Analysis by Kalkine Group 

Note: The reference data in this report has been partly sourced from REFINITIV 

  Technical Analysis Summary

Disclaimer

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