Monday, June 20, 2011

Bombardier Inc

I own this stock (TSX-BBD.B). I first bought this stock in November 1987 and then bought some more in April 1988. I have made a total return on this stock of 14.6% per year. About 3.6% per year of this total return would be dividends. We have been though a lot together, me and this stock. Bombardier had a massive run up and crashed in the last recession. This stock has not really recovered.

It seemed to hit bottom in 2004 and 2005 and was steadily recovering until it was hit by the recent recession. Dividends were cut in half in 2003 and then stopped completely in 2005. The company reinstated dividends in 2008. This company had in the past increased its dividends regularly at very good rates prior to 2003. They have yet to raise the dividend rates since they were reinstated in 2008. This is because earnings and cash flow have not recovered sufficiently.

Generally speaking, the growth rates on this stock have been better over the past 5 years than over the past 10 years. For example, the growth in earnings over the past 5 and 10 years, in US$, is 26% per year and 0% per year, respectively. In CDN$, the growth is 23% per year and negative 4.8% per year, respectively. For cash flow, the growth in CDN$ over the last 5 and 10 years is 10% per year and negative 8% per year, respectively.

Revenue growth is not great. In CDN$ it has gone nowhere over the past 5 and 10 years. It does not matter if you look at just Revenue or Revenue per share. In US$, the growth in Revenue per share over the past 5 and 10 years is 3.7% per year and 5% per year, respectively. The Revenue estimates show that revenue is not expected to increase again until the Financial Year ending in January 2013.

None of the debt ratios are particularly great. The current Liquidity Ratio is 1.12 with the 5 year median ratio being better at 1.33. The current Asset/Liability Ratio is 1.08 with the 5 year median ratio at 1.18. This company has changed over to the IFRS accounting rules for the first quarterly report of 2012 dated March 30, 2011. (The Financial year for this company ends at 31st of January of each year.)

The main problem with the change to IFRS is that book value on this stock has dropped some 60%. However, the net income hasn’t changed much. For the year ending in January 2011, the Return on Equity is 17.7% and this is quite good. However, with the lowing of the Book Value for April 2011and little change in the net income over the 12 months ending in April 2011, the ROE is now up 156% to 45%. There are often anomalies when accounting rules are changed. It is hard to know how this will play out.

The financial statements for April 2011 show what the Book Value would be if it had been based on IFRS over the past 3 years. In this case, the Book Value would have increased by 15% from January 2011 to April 2011. The other thing that has happened with the lowing of the Book Value is that the Leverage Ratio has gone from 5.38 to 14.33 and the Debt/Equity Ratio has gone from 4.38 to 14.33.

I will continue to hold my shares in Bombardier Inc. Because I bought this stock so long ago, my actual cost is just $.60 per share. My ACB is a bit higher at $2.47 because I claimed the Capital Gain in 1994.

Bombardier is a world-leading manufacturer of innovative transportation solutions, from commercial aircraft and business jets to rail transportation equipment, systems and services. Headquartered in Montréal, Canada, Bombardier has a presence in more than 60 countries. The Bombardier family controls 54% of the voting rights under this stock. Its web site is here Bombardier. See my spreadsheet at bbd.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

1 comment:

  1. Susan,

    Since you have bought Bombardier so long ago, it is understood that you don't want to or need to sell it. But for those who do not own this stock and who are reading your analysis, would want to know that given what you know about Bombardier, and if you do not own it, would you buy it today or in the near future? Thanks.