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Bombardier is a disaster waiting to happen, this investor says

Bombardier

Bombardier As investors, it can be useful to once in a while sift through a bunch of perpetually unloved stocks in search of that one diamond in the rough, and while a now slimmed-down Bombardier (Bombardier Stock Quote, Chart, News, Analysts, Financials TSX:BBD.B) might fit the bill as unloved, questions remain not only about its new iteration as a pure-play business jet company but the unwieldy debt load hanging around its neck. For Chris Blumas, portfolio manager at Raymond James Investment Counsel, those issues should be enough for you to toss Bombardier back on the pile.

“What Bombardier has done is they’ve focused just on the aircraft market now, so the business is a lot simpler than it used to be,” said Blumas, speaking on BNN Bloomberg on Tuesday.

“[But] the two problems that I have with Bombardier are the business economics and the balance sheet. They’re still burning cash flow — they went through a really really big capex program that’s winding off this year, so the outlook for cash flow going up is quite positive, but they still need to get their units out to drive profitability and the balance sheet is still not investment grade,” he said.

If you like disaster movies, Bombardier’s development in recent years —the past couple of decades, really— has been a triple bill of excitement, with the company spinning out early in the 2000s its original snowmobile-making business, then just a few years ago shedding its C-Series plane program to Airbus, followed by the sale of its aerospace parts manufacturing business in 2019, the dumping of its CRJ plane program to Mitsubishi Heavy Industries also in 2019 and then, earlier this year, divesting the entirety of its train business to Alstom.

All those moves have left Bombardier with less debt and a whittled down business focusing on its Global and Challenger series of business jets.

“We continue to make strong progress on each of our strategic priorities: maturing the Global 7500 aircraft program, delivering on our productivity initiative, executing our aftermarket growth strategy and deleveraging our balance sheet – setting the foundation for a more resilient and profitable business,” said Bombardier President and CEO Éric Martel in the company’s first quarter 2021 press release, delivered in early May.

Bombardier’s latest move to right the ship was a US$260-million private placement closed last moth, debt purchased at 7.45 per cent with senior notes due in 2034. The company was in a dispute with one of its bondholders who claimed that recent divestitures of assets violate covenants on some of its debt, but the new funding round has apparently settled the problem through amendments to the conditions on the senior notes.

But Blumas says the future could bode well for the new Bombardier but with so much uncertainty as to how they’ll get there, investors should probably go for less risky options.

“They did a recent debt issue for a five-year term, and they had to raise that at about seven and a half percent,” Blumas said. “In terms of my lens that I use to screen stocks and what I’m looking for, right off the bat the business economics wouldn’t meet my hurdle and the balance sheet wouldn’t meet my hurdle.”

“That said, if demand for private air travel increases and demand for business jets increases you could see a path down the road over the next three to five years where cash flow is a lot stronger,” he said.

“But with a balance sheet like they’ve got, you can also see a pretty bad downside scenario, as well, so in this case I think it’s just a bit too speculative and it’s one that I would steer clear of,” Blumas said.

Bombardier delivered its latest financial report in May where the company’s first quarter 2021 featured revenue down 12 per cent year-over-year to $1.341 billion, with adjusted EBITDA coming in at $123 million compared to $86 million a year earlier. The company’s business jet revenues grew by 18 per cent from 2019’s Q1, spurred by deliveries of 26 of the company’s Global 7500 jet.

The company said the worst of the pandemic’s impact on its business is now behind it, saying it will deliver between 110 and 120 aircraft this year. Bombardier said its reaffirmed aims for the year include diversifying its revenue mix through growth in aftermarket services, cost-cutting in Global 7500 production and obtaining $400 million in recurring savings by 2023.

“Through these actions, we work on transforming Bombardier into a more predictable, profitable and resilient company,” said Martel in a press release.

Bombardier’s share price went from $1.93 to $0.48 per share over 2020, while so far in 2021 the stock is up 125 per cent.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

Comment

  1. I guess you need to make yourself relevant with that kind of headline. You are a typical BNN contributor as to Bombardier always focusing on the negative, Do you also contribute to the globe and mail ?

  2. Nick buddy that article was awful, no balance, no mention of the half billion contract just signed, the 10 billion dollar backlog , the 20 350s they just sold, c’mon, and not to mention the click bait title. Bashing a company for clicks is low class journalism

  3. What a crock of shit of an article this was. How do they let you publish stuff like this?

  4. I’m an avid CNBC watcher. It appears that Nick Waddell (never read the name before this article and probably will never see the name again judging from his lack of intelligence and statistical prowess) is smarter than the multi millionaires that love the stock. Any amateur investor researching this stock knows they have restructured their debt intelligently and their balance sheet looks better than it has in years, and OH, just look at a one year graph on the stock lol. Yep, Nick Waddell, you are a really smart guy. Guess all the little investors like me and all the stockholders are just a bunch of idiots huh? I’ve wasted enough time. The proof is in the pudding, and not in Nick Waddell’s wallet. Buy BDRBF, just look at the chart and the fundamentals and the technicals, then you will know BDRBF is, well, you get the drift. MB

  5. Suggest you read Joseph says:
    June 13, 2021 at 1:00 pm post again. Joseph actually knows factual data, unlike the author Nick Waddell.

  6. Sad, that this sort of bashing occurs without apology.
    However, my guess is that Nick and his covert buddies are doing precisely what I am doing, as we gather as many shares in Bombardier as we can comfortably manage, without tipping the portfolio.

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