Canaccord Genuity has turned neutral on commercial aircraft maker Bombardier (TSE:BBD.A, TSE:BBD.B), and removed it from its Focus list.
Third quarter results released yesterday by the Montreal, Quebec-based company were below expectations, and aircraft orders remain weak, which may have ramifications for the company's outlook, the broker said.
“We are cutting to HOLD from BUY due to reduced forecast expectations from slower than previously expected cash flow improvement and value dilution from the new pending Quebec government investment in the C-series [jet],” Canaccord Genuity said.
Bombardier expects the C-series will use about $2bn of cash before it reaches positive cash flow in 2020/21, with about $1bn of that flowing out next year.
The C-series jet program is expected to start turning a profit in 2021.
The Quebec government intends to invest $1 billion in the C-series in exchange for a 49.5% interest in the program and warrants for 200 million BBD.B shares, the broker noted, adding this shores up the company’s liquidity position, although equity investors do lose about half of the cash flows from the program.
The price target has been cut to $1.35 from S1.40, which is more or less where the shares find themselves at present.