Bombardier is a trainload of trouble, this fund manager says

These days, Canadian plane and train-maker Bombardier (Bombardier Stock Quote, Chart, News TSX:BBD.B) has enough troubles to fill a jetliner and the situation could get worse before it gets better, says portfolio manager Andrew Pink of LDIC who says there are too many question marks for investors to be thinking about climbing on board.

Bombardier’s share price dropped to multi-year lows this month as the market reacts to the latest round of bad news which started with a warning from management about the company’s upcoming fourth quarter results. Bombardier lowered its guidance once again, effectively cutting its 2019 earnings forecast in half to $400 million, while its free cash flow was predicted to drop to negative $1.2 billion for the year.

The pared down expectations along with suggestions from management that it is rethinking its partnership with Airbus on the A220 jet program caused Bombardier’s share price to fall by over 30 per cent, with it currently sitting in the low C$1.00 range. (All figures in US dollars except where noted otherwise.)

This week brought more strife, with Bombardier reportedly in talks with competitor Alstrom on a partnership deal for BBD’s rail business, meanwhile Quebec premier Francois Legault has called the $1-billion cash injection delivered to Bombardier by the province in 2015 a “serious mistake” and has said that further bailouts for the company’s A220 program would not be coming.

“They should have invested in Bombardier, in the whole company,” Legault said to reporters, according to RDI, the French-language broadcaster. “Now we find ourselves in a situation where Airbus has the majority of shares, so it’s very difficult to make sure that cost sharing in that unit is done correctly.”

In Europe, German railway operator Deutsche Bahn is reportedly refusing to take 25 new intercity trains delivered by Bombardier in an order worth US$444 million, citing technical defects in the trains’ operating systems.

All those red flags should be enough to keep investors at a distance, even at the currently ultra-low share price, says Pink, who points to Bombardier’s perennial problem with debt as a key issue.

“We don’t own Bombardier and haven’t for a while,” said Pink, who spoke to BNN Bloomberg on Wednesday. “I owned it back when they were trying to run the C Series and they just kept failing and they just kept adding to their cost structure and that’s what they’ve done again.”

“They will sell something and I don’t know which of the segments it’s going to be but they’re going to have to capitalize their balance sheet,” he added. “Last I read, there’s about $10 billion in net debt on the company and I think about a $3-billion market cap, so they have to do something.”

Ahead of Bombardier’s full fourth quarter and fiscal year results due on February 13, the company last reported in late October where its third quarter featured a loss of $91 million or six cents per diluted share compared to a profit of $149 million or four cents per share a year earlier.

“Certainly, investors have a pretty sour taste for this stock and management doesn’t have much credibility on the street, unfortunately. I certainly wouldn’t be playing the equity side of things,” said Pink.