Stay clear of Bombardier, this fund manager says

Investors lined up to sell Bombardier stock on Friday (Bombardier Stock Quote, News, Chart TSX:BBD.B) after the transportation company’s latest quarterly results. But the skies ahead aren’t looking any better, according to David Driscoll of Liberty International.

Driscoll says that even owning Bombardier bonds is a risky venture at this time.

“If you don’t want to own the stock, then owning the bonds is the way to go, but you have to pay attention to [whether] Bombardier can cover their debt payments while their transportation business is stumbling,” says Driscoll, CEO of Liberty International Investment Management, to BNN Bloomberg last Friday.

Sell Bombardier?

“The last quarter was awful. Not a good place to be,” he says.

Bombardier’s 7.875 per cent bonds due 2027 traded last week as low as 97.5 cents, according to Trace bond price data. Bombardier shares fell 18 per cent last Thursday as investors reacted to the company’s second quarter earnings which featured consolidated revenues of $4.3 billion, a nine-per-cent organic growth rate driven by higher aircraft deliveries and aftermarket growth, according to the company’s management, which is in the final stages of a multi-year turnaround.

BBD’s share price dropped a further three per cent on Friday as the stock currently sits down almost nine per cent year-to-date.

“We are very happy with our continued momentum in aerospace, where our transformation is progressing ahead of plan,” CEO Alain Bellemare said in the company’s quarterly press release. “We have successfully addressed our underperforming commercial aircraft programs and are now fully focused on business aviation, where the ramp-up of Bombardier’s largest growth program, the Global 7500, is proceeding as planned, as are our aftermarket growth strategy and our product portfolio enhancements.”

Yet it was lowered guidance that caught the market’s attention, where management dropped its EBITDA forecast for its current fiscal year from between $1.50 billion and $1.65 billion to between $1.20 billion and $1.30 billion. The company also dropped its free cash flow outlook from between zero and negative $250 million to negative $500 million. Bombardier’s Q2 involved a net loss of $36 million or four cents per share whereas analysts were expecting a profit of $70 million or two cents per share.

Shares of Bombardier plummeted in 2018 as they company, in the middle of a five-year restructuring plan and the selloff of its troubled CSeries jet division, was the subject of an investigation from Quebec’s financial markets watchdog, The Autorite des Marches Financiers, who looked into the company’s stock sale program.

That followed on the heels of another scandal: in 2017 BBD execs came under fire for ill-timed pay raises and compensation packages that were worth (USD) $32.6 million US and were paid out just as the company has been given hundreds of millions in financial aid from provincial and federal governments.

“At the very least, it demonstrates a rather incredible sense of entitlement, doesn’t it?,” said David Baskin of Baskin Wealth Management to CBC News at the time. “Here’s a company that basically went begging to the province and the federal government for money, saying that if you don’t give us all this money, we’re going to lay off all these workers.”

At press time, shares of Bombardier on the TSX were down 2.7 per cent to $1.83.