Bombardier Inc

Bombardier Inc (TSX: BBD.B) is engaged in the manufacture of business aircraft. It designs, manufactures, markets, and provides aftermarket support for Learjet, Challenger, and Global business jets, spanning from the light to large categories.

Key Highlights

• Guidance for 2021: The company is repositioning itself as a pure-play business aviation company and 2021 would be a transition year as it executes the productivity actions. Revenues from business aircraft activities in 2021 are expected to be better than 2020 based on a gradual economic recovery scenario. Adjusted EBITDA is expected to be more than USD 500 million. EBIT is expected to be higher than USD 100 million and Free cash flow usage in 2021 is expected to be higher than USD 500 million.

Source: Company

• Productivity and profitability initiative: This initiative's overall goal is to make the company more efficient, agile, and capable of delivering more robust financial performance under current market conditions, while also establishing a lower cost base for growth once the market recovers. Notably, the company expects to achieve USD 400 million in recurring savings by 2023 through labour productivity improvements, reduced corporate costs and indirect spending, and by optimizing its manufacturing footprint.

Source: Company

• Strengthens liquidity: The Company focuses on strengthening its liquidity. Recently, it divested its transportation business. Moreover, the proceeds from the transportation would allow the Company to begin debt paydown.

Source: Company

Financial Overview of FY2020 (In millions of USD)

Source: Company

• For FY2020, the company posted revenue of USD 6.5 billion, against USD 7.5 billion in the previous corresponding period. Aircraft activities' revenues reached USD 5.6 billion in 2020, reflecting a 3% improvement, driven by the ramp-up in Global 7500 deliveries, which earned a record 16 deliveries in the fourth quarter.
• The company posted a lower gross margin of USD 516 million, against USD 1 billion in 2019. The gross margin declined due to higher sales cost, which stood at 92% in 2020, against 86% in 2019.
• In 2020, the group posted an EBIT of USD 912 million against a negative EBIT of USD 520 million in the previous corresponding period.
• The company minimized its net loss to USD 568 million in the reported period, against USD 1.6 billion in pcp, partially offset by the higher interest expense. 

Risks associated with investment

The Company streamlined its business segments and would concentrate on the aviation segment and the aftermarket segment. However, the ongoing lower operations on account of travel restrictions due to the Covid-19 pandemic could hamper the business. Some other risks are also present, such as business aircraft customers' financial condition, trade policy, increased competition, political instability, interest rates, foreign currency fluctuations, etc.

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

Business aviation is poised for gradual recovery from 2020 levels, and with the industry's most comprehensive product portfolio, we believe the company is well-positioned. In the longer term, all demand drivers are well-oriented. The retirement of older models, combined with the introduction of new models, would help to meet the new customers' needs. Furthermore, the management shared its expected numbers for 2021, where the revenue would be above USD 5.6 billion, along with adjusted EBITDA of over USD 500 million. On the flip side, the group has a huge amount of debt in its balance sheet, which is an area of concern; though, the group is focusing to deleverage its balance sheet by paying its debts. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating at the closing price of CAD 0.78 as on March 23, 2021. We have considered Air Canada, Spirit AeroSystems Holdings Inc, CAE Inc. as the peer group for the comparison.

1-Year Price Chart (as on March 23, 2021). Source: Refinitiv (Thomson Reuters)

Nomad Royalty Company Ltd.            

Nomad Royalty Company Ltd. (TSX: NSR) is a royalty mining company, that mines silver, gold, and other base metals. The portfolio includes Woodlawn property, Blyvoor property, Gualcamayo property, Suruca property, and other properties.

Key Highlights:

• Improved Cash balance: The company reported a cash balance of USD 22.517 million in FY20, from a nil balance in FY19. The improvement was driven by strong growth in cash from operations of USD 20.398 million in FY20 v/s USD 14.964 million in FY19. Moreover, the company’s current cash balance exceeds its total debt of USD 9 million, resulting net cash of USD 13.5 million, which is a key positive. Moreover, the company is focusing on expanding its asset base, which is likely to improve its future cash flows.            

Source: Company Presentation

• Sequential Improvement: The group reported higher revenue, gross profit and operating income in Q4FY20. Revenue stood USD 6.78 million in Q4FY20, higher than USD 5.68 million and 6.04 million in Q3FY20 and Q2FY20, respectively. Gross profit also improved to USD 1.72 million in Q4 FY20 v/s USD 1.39 million in Q3 FY20.
• Acquisition of Coral Gold Resources Ltd.: During Q4FY20, the company acquired Coral Gold Resources Ltd., which is a Gold exploration company operating for more than the last thirty-years in the districts of Neveda. The company is the owner of a sliding-scale 1% to 2.25% NSR royalty on Nevada Gold Mines. The above acquisition is expected to improve the company’s business prospects in the coming years.

Q4FY20 Financial Highlights:

• NSR announced its quarterly result, wherein the company posted total revenue of USD 6.78 million, higher than USD 4.613 million in the previous corresponding period (pcp). The improvement was primarily driven by improved income from gold and silver sales.
• The quarter was marked by a higher cost of sales (USD 5.061 million v/s USD 4.565 million in pcp) and an increase in general and administrative expenses (USD 1.101 million v/s USD 0.610 million in pcp). Operating income slide to USD 0.529 million, from USD 1.461 million in pcp, primarily attributable to a higher gain from change in fair value of gold repay loan in Q4FY20.
• Net income soared to USD 11.264 million, from USD 1.461 million in Q4FY19, supported by an income tax recovery of USD 4.737 million coupled with a gain from change in fair value of conversion option of USD 6.366 million.

Q4FY20 Income Statement Highlights (Source: Company Report)

Risks: The company’s operations are directly correlated with the international gold prices, and price volatility is likely to affect the company’s realization price, thereby impacting the overall performance.

Valuation Methodology (Illustrative): EV to Sales based

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock Recommendation:

Recently, the company announced the acquisition of royalty on a large gold deposit Blackwater Gold project located in British Columbia, Canada, which has the potential for the company’s resource expansion. The company derives its income from royalties from gold and silver and has an impressive portfolio of assets, which is a key positive. Moreover, historically, gold as an asset class has given exponential return, and we believe the momentum to continue in the coming days, supported by loose monetary policy stance across the globe. We have valued the stock by using the EV to Sales based relative valuation approach and arrived at a target price offering low double-digit upside potential (in % terms). We have considered peers like Maverix Metals Inc, Metalla Royalty & Streaming Ltd etc. Hence considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 1.02 on March 23, 2021.

One-Year Price Chart (as on March 23, 2021). Source: Refinitiv (Thomson Reuters)

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.