Bombardier Inc.

Operations Halted, Revised Guidance to Look for: Bombardier Inc. (TSX: BBD.B) is a global leader in the transportation industry, creating innovative and game-changing planes and trains. The company has manufacturing facilities across 25 countries.

To cater to the near-term challenges regarding COVID 19, the company temporarily halted its aircraft and rail production activities in the provinces of Quebec and Ontario. Furthermore, the company also suspended its FY20 guidance. The company would disclose its first quarter FY20 results on May 7, 2020.

FY19 Financial Highlights: BBD.B came up with its full-year results, wherein the company reported 3% decline in revenue at US$ 15,757 million, due to shrinking in revenue from transportation segment, which was partially offset by higher aviation numbers. Adjusted EBIT stood at US$ 470 million, as compared to US$ 1,029 million. The decrease was primarily due to R&D expense and higher cost of sales, which was partially offset by lower SG&A. The company reported a net loss of US$ 1,607 million, as compared to a profit of US$ 318 million in the previous financial year. The company exited the period with a cash balance of US$ 2,578 million, while total assets stood at US$ 24,972 million. However, Bombardier’s adjusted debt to adjusted EBITDA ratio remains significantly high at 10.9x. 

Stock Recommendation: BBD.B has eroded significant portion of investors’ wealth and declined by ~84% in the last one year and quoting at CAD 0.42 with a market capitalization of ~ 1.097 billion on 20 April 2020 market close. The stock is trading at the lower band of its 52-week trading range of CAD 2.92 and CAD 0.38. BBD.B stock is under sharp selling pressure since it announced the sale of its transportation division to Alstom. The cash strapped company is looking to deleverage its balance sheet though divesting the transportation segment. However, the company’s reliance on the sole aviation business keeps us on the sidelines. The expected slowdown in the economy could hit Bombardier’s business hard. Also, the company has a huge chunk of debt in its balance sheet with high degree of uncertainty. Hence, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 0.42 as on April 20, 2020.

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

Canadian Apartment Properties Real Estate Investment Trust

Short-term Weakness Could Impact Rent collection: Canadian Apartment Properties Real Estate Investment Trust (TSX: CAR.UN) or CAPREIT is one of the leading real estate investment trusts in Canada. CAPREIT manages about 60,900 of its own suites in Canada and Netherlands. Moreover, CAPREIT also manages about 3,700 suites in Ireland. 

The company declared a monthly dividend of CAD 0.11500 per unit, payable on May 15, 2020. Meanwhile, the company distributed a dividend of CAD 1.372 per unit in FY19, higher than CAD 1.313 per unit in FY18. The company would unveil its first quarter FY20 results on May 15, 2020.

FY19 Operational Highlights: CAR.UN came up with its full-year results, wherein the company’s operating revenues of CAD 777.9 million, up 13% on y-o-y basis. The increase was aided by robust portfolio growth and an increase in monthly rents. Also, high occupancy rate further drove the revenues. Net rental income stood higher at CAD 508.15 million, higher from CAD 439.06 million in FY18. Net income stood at CAD 1,195.45 million, which was lower than CAD 1217.67 million in FY18, on account of higher expenses. The company exited the year with a cash balance of CAD 477.33 million, while total assets stood at CAD 14,017.95 million. During FY19, the company made a capital investment of CAD 242.36 million, substantially higher than CAD 203.78 million in FY18 while the acquisition of investment properties has amounted to CAD 1,327.40 million. The company reported a robust y-o-y growth of 17.2% in its net funds flow from operations (NFFO) of CAD 339.1 million.

FY19 Operational Highlights (Source: Company Reports)

Stock Recommendation: The stock of CAR.UN has corrected by ~12% and ~0.58% during the last six months and one year, respectively and currently trading at a market cap of CAD 8.30 billion. CAPREIT remains well-positioned on the liquidity front to navigate the current crisis. Management expects multi-family real estate sector is defensive and can bear the large market swings. However, we expect near-term weakness owing to the COVID 19 spread to play spoil-sport. Going forward, we expect challenges in rent collection and a spike in arrears. The company’s long-term outlook remains strong. However, we prefer to remain on sidelines due to the expected decline in occupancy rate and lower rent. Investors should note that the company has a decent dividend yield ratio and the stock is trading at a premium valuation (EV/EBITDA of 27.9x vs industry average of 15.8x). Hence, we recommend a ‘Watch’ stance on the stock at the Closing market price of CAD 48.30 as on April 20, 2020.

CAR.UN Daily Price Chart (Source: Thomson Reuters)

Disclaimer

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