Bombardier Inc

Bombardier Inc (TSX: BBD.B) is engaged in the business of manufacturing aircrafts. 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; 2021 will be a transition year as it executes its 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 increase to greater than USD 500 million. EBIT is expected to be greater than USD 100 million. Free cash flow usage in 2021 is expected to be better than USD 500 million.

Source: Company

• Rising Jet Revenues in Q1 2021: The company's business jet revenues climbed 18% in Q1 2021, totaling USD 1,341 million, owing to a positive mix of large-cabin aircraft sales, aided in part by the Global 7500's manufacturing rate stabilizing. Overall, aircraft manufacturing operations accounted for 80% of total income, with the balance coming from the aftermarket.

Source: Company

• Healthy business aircraft deliveries:The company delivered 26 business aircraft in Q1 2021 at par with the previous corresponding period. The company is still on track for 110-120 deliveries in 2021, as a market shows indications of recovery, which is noteworthy. Strong sales activity in the first quarter resulted in a unit book-to-bill ratio of more than 1.0, which is likely to persist into the second quarter.

Source: Company

Financial overview of Q1 2021 (In millions of USD)

Source: company

• In Q1 2021, the company posted revenue of USD 1,341 million, against USD 1,522 million in the previous corresponding period. Business jet revenue increased 18%. The increase was mainly driven by an improved mix of large-cabin aircraft deliveries, including eight Global 7500 aircraft.
• The company posted an improved gross margin at USD 184 million, against USD 165 million in pcp. The gross margin as a percentage of revenues increased by 2.9% mainly due to higher contribution from business aircraft manufacturing, including the benefit of progress on the Global 7500 learning curve.
• The company clocked a net income of USD 5,070 million in the reported period, against a loss of USD 200 million in pcp. An improvement in net income was primarily due to income from discontinued operation at USD 5,321 million.

Risks associated with investment

The company restructured its business areas and decided to focus on the aviation and aftermarket markets. However, the firm may be hampered by fewer operations due to travel limitations caused by the COVID-19 epidemic. Other hazards include the financial status of business aircraft clients, trade policies, increasing competition, and political upheaval, interest rates, foreign currency fluctuations, etc.

Valuation Methodology (Illustrative): EV to EBITDA

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

Stock recommendation

Bombardier's financial performance in the first quarter of 2021 was strong, with increased business jet sales, expanded margins, and enhanced cash flow. Furthermore, the company is making significant progress on all of its strategic objectives, including maturing the Global 7500 aircraft programme, delivering on efficiency effort, executing the aftermarket development plan, and deleveraging the balance sheet, which is commendable. The business's order activity was high in the reported quarter, resulting in a book-to-bill ratio of more than 1.0, and the firm expects strong sales activity and favorable market trends to continue into the second quarter. Based on technical analysis, the stock has support at CAD 0.75 level. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating at the closing price of CAD 0.92 as on May 20, 2021. We have considered Spirit AeroSystems Holdings Inc, General Dynamics Corp, CAE Inc. etc as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

1-Year Price Chart (as on May 20, 2021). Source: Refinitiv (Thomson Reuters)

BTB Real Estate Investment Trust

BTB Real Estate Investment Trust (TSX: BTB.UN) is an unincorporated, open-ended real estate investment trust based in Canada. Its operating segment includes Retail, Office and Industrial. 

Key Highlights:

• An income Play: UN has a solid history of consistent dividend payment across economic cycles, which indicates business resiliency. Dividend distribution during Q1FY21 stood at CAD 4.828 million, improved from CAD 4.778 in Q4FY20. Notably, at the last traded price, the stock was offering a dividend yield of ~7.4%, which is lucrative considering the current interest rate scenario.

Ten Years Dividend History (Source: Thomson Reuters)

• Occupancy rate stood at ~91%: In the first quarter of FY21, the company reported a stable occupancy rate of 91%. The industrial and retail occupancy rate stood at 95.6% and 90%, respectively, while the office segment reported occupancy at 89.3%. The group has 5.3 million sq. ft of the total leasable area from its owned 64 properties, which has a fair value of CAD 905 million and generated ~CAD 23.8 million of rental income.

Source: Company Report

• Strong Clientele suggests business stability: The corporation has collaboration with renowned names and government bodies, which indicates stable and high-quality cash flow. The group derives 7.3% and 6.2% of the total revenue from the Government of Québec and the Government of Canada, respectively, while other premium clientele includes Walmart Canada inc, WSP Canada Inc. etc.

Source: Company Report

• Improve Cash from operations: Despite the ongoing economic jolt, the company reported cash from operations of CAD 13.149 million, significantly higher than CAD 10.674 million in the previous corresponding period (pcp). The increase was supported by a net income v/s a net loss in pcp coupled with improved working capital management.

Source: Company Report

Q1FY21 Financial Highlights:

• UN announced its quarterly results, wherein the company posted rental revenue of CAD 23.532 million, as compared to CAD 23.868 million in the previous corresponding period (pcp). The performance was impacted by sluggish office income, while the industrial segment reported improved traction during the quarter.
• Total Operating expenses stood at CAD 11.118 million, increased from CAD 11.102 million in pcp, due to higher public utilities and other operating expenses (CAD 5.519 million v/s CAD 5.335 million in pcp), partially offset by lower property taxes and insurance expenses (CAD 5.599 million v/s CAD 5.767 million).
• The group reported a net income of CAD 2.510 million, as compared to a net loss of CAD 5.587 million in pcp.
• Cash and cash equivalent stood at CAD 6.255 million, while total assets were recorded at CAD 923.854 million.

Income Statement Highlights (Source: Company Report)

Risks: The company’s performance is directly correlated with the current general condition of the economy, and an economic slowdown would impact the occupancy rate, rent collection etc.

Valuation Methodology (Illustrative): EV to EBITDA based

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

Stock Recommendation:

The group has a diversified portfolio while reported a solid rent collection of 99.6% in Q1FY21 and reported renewals & new leases of 50,445 sq. ft. during the quarter. Moreover, the company an improvement in total debt ratio (total debt to total assets) from 59.4% at the end of Q4FY20 to 58.9%, which is a key positive and indicates higher financial flexibility. We have valued the stock using the EV to EBITDA value based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered industry (financials) median on an NTM basis. Based on technical analysis, the stock has support at CAD 3.35 level. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the last traded price of CAD 4.08 on May 20, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

One-Year Price Chart (as on May 20, 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.