What CSeries "Really" means to the value of Bombardier Inc. for the investment world? Not much!
CSeries won't mean much more until two things happen
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11:20 - August 25, 2017 - Quebec, Canada
What CSeries "Really" means to the value of Bombardier Inc. for the investment world?
It must be understood that CSeries does not mean much to investors when evaluating the value of Bombardier Inc. It has already been written off from the books and Bombardier only own 50% of it. It is almost cash positive, not yet, with a much slower production than expected.
What investors care about is the rest of the business… Transportations, potential deal with Siemens. Business Jets sales and the incoming global 7000 and 8000 which provide great profit margins…
CSeries won't mean much until two things happen:
- Orders for another one of two hundred units, depending on the customer prestige and meaning.
- Higher production and delivery from the factory.
Maybe a third event could change this, totally selling it or welcoming a 3rd investor from China who would bring some hundreds units orders. I say China, but why not Airbus or Boeing?
Until then, CSeries does not mean much on the balance sheet… go with the flow like they say…
But! If Bombardier were to sell CSeries, what could they get for it?
Many methods exist to get to a valuation or FMV (fair market value). In this case I like to stick to a few… one is the cost itself… it cost Bombardier about $6 billion. So, that's a start.
What could it be worth to a buyer?
The buyer could take the money and just do the same, design one from scratch. Will they get the same results? CSeries is now proven and above expectations both technically and by its customers and users (passengers and crew).
Why would a buyer spend the money to acquire the CSeries business then? Time to market!
A product now, no waiting! All designed, approved and ready now! This is the key point to me. What would it be worth to a buyer to have it now, and sell units now? A simple investment in the factory (or factories) to increase its production… the rest is done already largely speaking.
Basically we could think the CSeries business is worth at least the investment made by Bombardier, and maybe more with the success of the aircraft mentioned above you might think...
Would Bombardier sell the business for $6 billion? Take the money, pay back almost 2 third of the its debt and move on? Remember, Bombardier has to pay back Quebec $1 billion first to acquire back the whole CSeries business, to be able to sell it. With some extra perks to Quebec I would think of about 10%, or $1.1 billion, this would be leaving around $4.9 billion positive cash flow to Bombardier Inc. (When you think about it, Quebec government "investment" in acquiring almost 50% of CSeries is more like a mortgage without being one… but this is another subject and is deeply written in the agreement).
Other factors are important to get to a valuation for the "buyer"… Key to me when talking about the CSeries business… "Who else will/could do it if I'm not the one doing it and what impact will it have on my business" are points all potential buyer need to answer, to evaluate ($)
This is the real kicker if you ask me… and it applies as well to a potential 3rd party investor who can impact to a large scale the number of aircraft sold and production ramp up… This would also "certainly" get to the release of the CS500 and so on, insuring a long and bright future for the CSeries business… Bombardier could buy back Quebec's part too maybe at that point.
Thinking back on the value of CSeries for Bombardier Inc. investors… Option 3 is not bad… not bad at all… "Divided we fall, together we stand"… 机会
Food for thought for this week-end… Have a great one!