Bombardier Inc.’s (TSX:BBD.B) turnaround plan appears to be working as its FY 2017 results showed an improvement in margins
SmallCapPower | March 15, 2018: Bombardier Inc. (TSX:BBD.B), headquartered in Montréal, Canada, is one of the world’s leading manufacturers of airplanes as well as trains. Established in 1942, Bombardier operates through its two divisions – Bombardier Aerospace and Bombardier Transportation.
Bombardier Aerospace designs, manufactures and provides high-performance aircraft and related services in following segments: Business Aircraft, Commercial Aircraft, Aero structures & Engineering Services, Specialized Aircraft Solutions, and Aircraft Services and Training. In addition, Bombardier Transportation offers a wide range of products and services in the rail industry through the following segments: Rail Vehicles, Propulsions and Controls, Bogies, Services, Transportation Systems, and Rail Control Systems.
The Company’s partnership with Airbus for C Series aircrafts is aimed at catering to emerging economies, such as like India and China, where there is rising demand for smaller planes. Bombardier is working towards achieving its financial goals by 2020, which looks to be on track, judging by its FY 2017 results, which showed an improvement in margins.
Investment Thesis:
- Wide range of products and services offered across the globe
- Strategic partnership with Airbus
- Progressing towards 2020 financial goals
Wide range of products and services offered across the globe
Bombardier has diversified revenue streams as it caters to customers worldwide through its aerospace and transportation divisions. Bombardier Aerospace designs, manufactures and provides high-performance aircraft and related services in following segments: Business Aircraft (Learjet, Challenger and Global aircraft families), Commercial Aircraft (C Series program, CRJ Series and Q Series aircraft families), Aerostructures & Engineering Services (aircraft structures, component repair and other services), Specialized Aircraft Solutions, and Aircraft Services and Training.
Bombardier Transportation offers a wide range of products and services in the rail industry through the following segments: Rail Vehicles (automated people movers, monorails, light rail vehicles, advanced rapid transit, metros, commuter/regional trains, intercity/high-speed trains and locomotives), Propulsions and Controls, Bogies, Services (fleet maintenance, operations and maintenance, vehicle refurbishment and modernization, and material management), Transportation Systems, and Rail Control Systems (advanced signaling solutions for mass transit and mainline systems).
Strategic partnership with Airbus
In October 2017, Bombardier entered into an agreement with Airbus SE, in which Airbus is expected to provide procurement, sales and marketing, and customer support expertise to the C Series Aircraft Limited Partnership (CSALP), the manufacturer and seller of the C Series aircraft. Upon closing, Airbus will get 50.01% stake in CSLAP, while Bombardier and Investissement Québec (IQ) will own approximately 31% and 19%, respectively. CSLAP’s headquarters and primary assembly line will be in Québec supported by Airbus. Importantly, the partnership with Bombardier offers Airbus an opportunity to expand its footprint in Canada driven by the addition of the C Series manufacturing at Airbus’ site in Alabama, United States. The deal has been approved by the Boards of Directors of both Airbus and Bombardier, as well as the Cabinet of the Government of Québec. The transaction remains subject to regulatory approvals and is expected to close later in 2018.
Progressing towards 2020 financial goals
Launched in 2015, Bombardier’s five-year turnaround plan is anticipated to get executed by 2020 on the back of improving financial performance, driven by management’s proactive and disciplined approach. Bombardier has robust backlogs across growing business segments and a clear-cut plan to increase its Aerospace programs and Transportation projects, which includes the anticipated service launch of the Global 7000 aircraft and the closing of partnership agreement with Airbus on the C Series.
Outlook and Valuation
Bombardier’s diversified portfolio, partnership with Airbus, and its planned approach to a turnaround by 2020 are expected to have positive effects on the Company’s stock. This effect was exhibited in its 2017 financial results, as Bombardier reported US$16.2 billion in consolidated revenues for FY 2017, with considerable improvement in margins as compared to the previous year. EBIT margin before special items came at 4.1% in FY 2017 vs. 2.6% in FY 2016. Importantly, Bombardier has set a breakeven target (± US$150 million) for free cash flow for FY 2018. Bombardier is covered by 16 analysts, with an average target price of $3.75.
Disclosure: Neither the author nor his family own shares in the company mentioned above.
To read our full disclosure, please click on the button below:
