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 Updates:

• On August 24, 2020, the Company announced it has delivered the first Global 7500aircraft equipped with a dual head-up display (HUD), which provides additional safety and redundancy and offers the most advanced and pilot-friendly cockpit in business aviation.
• Recently, the Company announced that it has successfully closed the previously announced three-year USD 1.0 billion senior secured term loan facility with HPS Investment Partners, LLC.

Q2FY20 Financial Highlights: BBD.B announced its quarterly results, wherein the Company posted revenue of USD 2,702 million, representing a fall of 37% on y-o-y basis. The Company posted a gross loss of USD 223 million as compared to USD 496 million in the previous corresponding period (pcp). The decline was due to lower level of production activity and deliveries due to lower operations at key Aviation and Transportation sites across North America and Europe were temporarily suspended for several weeks due to the COVID-19 pandemic. Adjusted EBITDA loss stood at USD 319 million, significantly lower than a profit of USD 312 million in pcp,  primarily attributable to the incremental charges related to transportation, engineering, certification and retrofit costs related to a number of late-stage projects mainly in the U.K. and Germany. Net loss widened to USD 223 million from a loss of USD 36 million in pcp. The Company reported Cash outflow from operating activities at USD 957 million as compared to an outflow of USD 289 million in pcp. The company ended the quarter with a cash and cash equivalent of USD 1,724 million.

Q2FY20 Financial Snapshot (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 tumbled 79% so far this year. The company faced severe hindrance in the aviation segment, due to the tepid aircraft order intake, which eventually drags the company’s cash flow. To match the current operational level, the company has reduced its workforce by 2,500 employees, which is a prudent means of preserving liquidity. Further, the company secured senior secured term loan facility amounting USD 1.0 billion, which is likely to support the company’s near-term working capital requirements. 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. Further, BBD.D stock trades at an EV to EBITDA of 21.9x on a TTM basis, as compared to 8.2x of the industry (aerospace & defense) median. Hence, considering the current industry scenario, price movement and valuation, we prefer to remain on the sideline and recommend a ‘Watch’ stance on the stock at the last closing price of CAD 0.40 on August 24, 2020.

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

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