Bombardier investors ‘are right to be cautious’, but this could be time to invest
Caution among Bombardier’s investors is not misplaced, despite strong market performance highlighted by a 2.5 book-to-bill ratio, according to Richard Aboulafia, MD, AeroDynamic Advisory. Aboulafia’s comments followed a drop in share price in excess of 30% this month.
“I understand the skittishness by investors. Bombardier is the only publicly-traded pure-play business jet prime. And historically, this market is sensitive to economic downturns,” Aboulafia told CJI.
Indeed the market is sensitive to economic downturns. In 2009, Bombardier was forced to cut over 1,350 jobs. Just before the pandemic, in January 2020, the Canadian OEM’s share price fell by 38% in a day after it slashed guidance by almost half on its 2019 earnings.
At that time the firm was reeling from problems with its, now-sold, rail unit and aircraft deliveries were also delayed. But Bombardier has just reported record first quarter aftermarket revenues and a growing backlog that rose by $1.3bn to $13.5bn since the beginning of the year.
But Bombardier’s share price continues to bottom out. It closed yesterday (28th June) at CAD$19.41 up 1.52% (+0.29) from the day before. However, over the past five days it is down -17.4% (-4.09) and over the month -37.89% (-11.84).
Shares fell to their lowest since March, 2021 on 14th June when Bombardier announced a US$350m offer to buy back some of its debt, ahead of schedule, using cash on hand. The day before, it completed a reverse stock split, whereby the firm consolidated its Class A and Class B shares at a 25-to-one ratio.
The stock closed at CAD$21.97 (-18.21%) on 14th June, finishing the trading day as the worst-performing stock on the Toronto Stock Exchange. That record was broken again on 27th June as the stock closed at CAD$19.12.
The move has moved some analysts to revise their 12-month price target for the stock. But others are optimistic that the share consolidation may help attract more long-term investors.
Mark Masluch, senior director, Communications told CJ the state of Bombardier’s financial performance in the last two years should be reflected through quarter after quarter performance. “Since we became a pure-play business jet company it has met its financial targets and exceeded market expectations with strong results. It has made considerable progress towards its longer-term financial goals and is on track to build a more resilient business.”
Bombardier is progressing toward a more financially flexible company, said Masluch. “We’re pleased with the compounding effects of our positive results quarter after quarter, which unfortunately is not reflected in Bombardier’s stock performance.”
Aboulafia added: “Management has been doing the right things, and the market is still holding up very well, but talk of recession makes people nervous. Removing Russia, and for that matter China, from the large cabin market doesn’t help either.”
But this could be a good time to invest in the Canadian OEM, according to Dhierin Bechai, founder, Aerospace Forum. “Bombardier has made the painful cuts and is successfully turning the company around with a focus on aftermarket sales expansion. Previously, I wasn’t really enthusiastic about Bombardier’s turnaround plans as they were plans that assumed perfect execution.”
The current plans are ambitious as well, said Bechai. “But Bombardier is now focusing on doing one thing well which is building and supporting business jets and the results are already showing while the company for instance for 2022 has been conservative with is guidance expecting stable flying hours while hours are actually increasing.”
Bechai thinks Bombardier might positively surprise in the best case and in the worst case it has built in sufficient buffers in its assumptions. “I believe that with the significant expansion into services as well as the focus on business jets, if you want to own shares of a business jet manufacturer Bombardier is a promising name,” he added.