Why Is Bombardier (TSX:BBD) Among Most Active Stocks On TSX?

Summary

• Bombardier stocks (TSX: BBD.B) shot up by nearly 45 per cent in November.
• The Canadian company’s joint venture Bombardier Sifang (Qingdao) Transportation Ltd was recently awarded a US$ 248-million deal by the China State Railway Group Co.
• Bombardier Inc’s business aircraft manufacturing revenues grew 20 per cent YoY in the third quarter ending 30 September 2020.
• The company generated US$ 275 million from the sale of its aerostructures segment to Spirit AeroSystems Holding Inc (NYSE: SPR), which was closed on 30 October.

The COVID-19 pandemic has decimated the market value of Bombardier Inc (TSX: BBD.B). This once-powerful industrial stock has plunged by nearly 79 per cent year-to-date.  In contrast, the S&P/TSX Capped Industrials Index has grown about 14 per cent this year.

However, stocks of transportation equipment maker have been trending high on the Toronto Stock Exchange this month. The stocks accumulated an average share trading volume of 9.3 million in the last 10 days and of 5.8 million in the past month.

Bombardier stocks saw heightened trading amid the COVID-19 pandemic this year. Following the news successful COVID-19 vaccine trials by Pfizer-BioNTech, Moderna and, most recently, AstraZeneca-Oxford University in November, the industrial stock saw higher demand among investors. However, a second wave of the coronavirus outbreak continues to stir caution.

Let’s analyze this trending stock’s profile further to understand its performance.

Bombardier Inc (TSX: BBD.B) Stock Analysis

Current Stock Price: C$ 0.41

As Bombardier Inc’s business suffered due to the pandemic, so did its stock value as investors moved away from risky assets and took refuge in safe assets amid the market collapse.

Its scrips dwindled about 79 per cent this year, and by 18 per cent in the last six months.

But the rout in Bombardier stocks did not arrive with the pandemic. 

The company’s capital-intensive business had been struggling since 2018, ultimately failing to turn around things. It was already knee-deep in trouble with debts from previous deals when the coronavirus pandemic hit this year and burned it further.

However, after a number of asset sales and new manufacture contracts, the Canadian company has been slowly picking up business.

Most recently, its joint venture Bombardier Sifang (Qingdao) Transportation Ltd was awarded a US$ 248-million deal by the China State Railway Group Co for the delivery of 112 CR300AF high-speed train cars, expected by January 2021.

Bombardier Inc also signed a deal to build a service centre in Germany’s Berlin in the third quarter of 2020, while completing the acquisition of Lufthansa Bombardier Aviation Services (LBAS).

The company announced on Sunday, November 22 that it is setting up an engineering academy in Cairo, Egypt.

In November, Bombardier stocks have rebounded by nearly 45 per cent (month-to-date).

Bombardier Financial Highlights

Impact of the government-mandated lockdown mirrored on Bombardier Inc’s first two quarters this year. While the situation improved slightly in the third quarter of 2020, its financial results were still below the pre-pandemic levels.

Its total revenues of US$ 3.5 billion in Q3 2020 dropped by five per cent year over year. The Montreal-based company attributed this loss to “pandemic-related disruptions and divestitures”

Bombardier Inc, however, saw its business aircraft manufacturing revenues climb 20 per cent YoY in the third quarter ending 30 September 2020, amounting to US$ 1.4 billion.

While its free cash flow usage stood at US$ 0.7 billion at the end of September 2020, its operating cash flow usage reached US$ 0.6 billion.

Bombardier Inc had about US$ 1.9 billion cash on hand by the end of the third quarter. The company also generated US$ 275 million from the sale of its aerostructures segment to Spirit AeroSystems Holding Inc (NYSE: SPR), which was closed on 30 October. The total transaction valued at US$ 1.2 billion, said its official news release.

Bombardier Inc is also set to finally close the sale of its transportation business to French company Alstom SA by the first quarter of 2021, the company said in its statement.

Once this deal is goes through, Bombardier Inc will become a “pure-play business aircraft company”.

Bottomline

Drilling down to the basics, Bombardier has a significantly higher debt-to-total capital profile as compared to the sectoral median with a lower interest coverage ratio.  

The company started making losses in 2019 (net loss of US$ 1,607 million) due to increase debt, interest obligations and contracting margins. By the end of June 2020, the net loss had widened by 519 percent year-over-year.  

Over time, the manufacturer turned into a loss-making enterprise from profiting venture.  

With widening net losses and failed aerospace programs, the business asset sell-off emerged as the only viable path.  

However, Bombardier continues to attract investors, despite a falling stock price and a dismal financial report for 2020.  

While the company’s aerospace and transportation divisions may have been hollowed out, and its service segment continues to keep its heft intact, with a strong order book, especially in the booming Asia-Pacific market.  

Some highlights include € half-a-billion-worth orders in India, metro cars worth about C$ 330 million (S$ 337.8 million) in Singapore (along with service contract) and production assets in China.