BBD.B : TSX : C$3.50
Bombardier operates in two major and roughly equally sized
segments: 1) aerospace equipment including business jets and
small airliners, and 2) rail equipment. Products are sold and
manufactured on a global basis.
All amounts in C$ unless otherwise noted.
Transportation and Industrials — Airlines and Aerospace
BT PRESIDENT MEETING AND EUROPEAN TOUR
BUY for margin expansion potential, new products
We continue to recommend BUYing Bombardier (BBD) due to 1)
surprisingly good CSeries order flow at the Farnborough air show, 2)
increased focus on improving profitability at Bombardier Aerospace (BA),
and 3) margin improvement potential from the weak Canadian dollar.
BT continues to hold potential
BBD held an investor trip to Europe this week. Key stops included a
meeting with Bombardier Transportation (BT) President, Dr. Lutz Bertling
and plant tours of BT’s largest facility, Henningsdorf, and the Bombardier
Aerospace (BA) CSeries wing plant in Belfast. Takeaways include:
BT sales growth looks positive. Growth should be in the 5-10% per
year range for the next 3 years, and 3-5% per year thereafter;
BT still believes 8% EBIT margins are quite possible, which would
be a big pickup from the 6% targeted for 2014;
The CSeries continues to progress, with production wings moving
through the Belfast plant. Belfast’s composite technology also
appears impressive and proprietary.
Forecast bumped on BT sales discussion; target bumped on forecast
The BT sales guidance was higher than we were projecting, so we
increased our forecast to be in line with the growth rates outlined by
management. Our target increased on our new forecast.
Valuation maintained at a premium level
We are maintaining our valuation multiple at 9.0x EV/NTM EBITDA in
one year (9.0x Q2/15E EV to Q3/15E – Q2/16E EBITDA). Our valuation
remains at a premium level, reflecting the significant EPS growth
potential from BBD’s new product and other opportunities.