Bombardier Inc. (TSX: BBD.B) set to fit Metro Tunnel with high-capacity signaling in Australia
SmallCapPower | July 18, 2017: Bombardier Inc. (TSX: BBD.B) and privately-held CPB Contractors have been awarded US$1 billion contract by the Victorian Government to install high-tech railway signaling that could enable trains in Melbourne to run as little as two minutes apart. The high-capacity signaling technology will be installed on the Pakenham/Cranbourne and Sunbury lines, two of the city’s busiest railway corridors, which are due to be connected by the $11 billion Metro rail tunnel by 2026.
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The current contract win will boost up revenues for Bombardier in the near term, which have been under pressure the past two years. The project will be executed by Bombardier and CPB Contractors through an equal partnership, implying ~US$500 million revenues to both by end of this year. Bombardier’s Australia operation had reported revenues of US$516 million (down 15% YoY) in 2016, so the current deal can boost the annual revenues by 100% for Australian operations.
In terms of valuation, Bombardier currently trades at price to TTM sales of 0.32x and forward PE of 33.71x.
In its Q1/2017 financial results, Bombardier registered a $31mm loss, and revenue declined 9% from the same period a year ago. Bombardier, however, has an astonishing $8.7B in debt, which they will have trouble paying off due to their inability to bring in cash.
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, though, for a company that will likely have trouble paying off its debt.
Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.
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