Bombardier management stated they are off to a good start this year, yet the Company booked a $31mm loss, and revenue declined 9% from the same period a year ago
Thomas Chapman | June 23, 2017 | SmallCapPower: The last year Bombardier Inc. (TSX: BBD.B) was profitable was 2013, and since then the Company has lost billions of dollars. In its Q1/2017 financial report, Bombardier management stated they are off to a good start this year, yet they booked a $31mm loss, and revenue declined 9% from the same period a year ago. Furthermore, Bombardier has an astonishing $8.7B in debt, which they will have trouble paying off due to their inability to bring in cash. Unless the Company’s C Series and Global 7000/8000 aircraft projects are a ‘home run’, Bombardier will have to take alternative measures to pay off their debt, which will deteriorate shareholder value.
Related: Bombardier (TSX: BBD.B) Stock: Is it Worth the Risk?
In the financial analysis listed above on this page we discuss the poor financial condition of Bombardier and highlight their poor liquidity and troublesome debt load. What is most concerning is their 13.1x debt to EBITDA ratio, which is more than 8x higher than the Aerospace & Defense industry median of 1.5x. This ratio shows that it will take Bombardier 13 years to pay back its debt using its EBITDA, if EBITDA is held constant, concerning as most of their debt matures within the next seven years. Consider here that Adjusted EBITDA decreased 5% from Q1/2016 to Q1/2017, and that the Company’s leverage is expected to grow by $750mm due to spending on the C Series project.
Bombardier has also given some guidance on free cash flow (FCF), stating they will breakeven on FCF in 2018 and generate $750-$1,000 in sustainable FCF by 2020. The issue here is that they have $800mm of debt maturing in 2019 and ~$6B maturing in the four years after that.
Bombardier Debt Maturity Profile
Source: Company Filings
You might think Bombardier can just use their available short-term capital resources (Cash and revolver) of $3.9B to pay off a portion of this debt, but this money will be needed to pay off short-term obligations due to their poor liquidity and inventory turnover. Bombardier may have to halt CapEx spending, which will deteriorate the value of their assets and stop any growth initiates in their pipeline, thus limiting their ability to generate cash flows.
The Company’s FCF guidance seems aggressive given their history of poor budget projections and missing project deadlines. So, what we are left with is a mismanaged company that will have issues paying off debt, if it does pay off its debt it will be left with a depleted asset base.
Bombardier is trading at 18.2x EBITDA compared to the Aerospace & Defense industry median of 11.3x, suggesting investors are optimistic about the Company’s future EBITDA growth. This valuation seems high for a Company that will likely have trouble paying off its debt.
Bombardier Comp Table
Source: Ubika Research
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