CAE Inc. used the pandemic to make strategic investments that have boosted its competitive edge and laid the groundwork for future gains. It also gets most of its revenue from recurring contracts and will continue to benefit as the airline industry regains its footing.
Here’s an update:
Background: CAE (TSX: CAE) (Closed Friday at C$29.65) is the world’s largest maker of flight simulators used to train civilian and military pilots. Commercial aviation is about 55% of revenue, military is 45% and healthcare and medical simulation 5%. About 90% of revenues come from outside Canada with a large portion in emerging markets.
Performance: CAE’s shares fell 16% in 2022 but have rebounded rising 13.1% year-to-date at recent prices. They are 44% higher than their recommended price.
Recent Developments: CAE’s fortunes rebounded in its fiscal 2023. On May 31, CAE reported fourth quarter results with revenue and earnings beating consensus estimates. Revenue rose 32% to $1.26 billion which lifted earnings before unusual items by 21% to 35 cents a share.
CAE ended the quarter with a record order backlog of $10.8 billion, up 13% from a year earlier.
Discussion & Outlook: CAE gets most of is revenue from recurring contracts and continues to benefit as more normal travel habits resume. That is leading to more orders for its flight simulators where it has roughly 70% of the global market for military and civilian applications.
CAE used the pandemic to strengthen its leading position in commercial aviation, making nine acquisitions in 18 months. It continues to expand its line of medical training services where it offers mannequins to train paramedics, nurses and medical students.
In a recent research report RBC Capital Markets analyst James McGarragle offered three longer term energizers. The first is secular tailwinds including recovery in passenger travel. Favourable pilot demographics is another second with higher demand for training as younger pilots enter the industry. A third is higher military spending by NATO members driven by Russia’s invasion of Ukraine.
He believes that since CAE operates the world’s largest civil aviation training network its dominance acts as a significant barrier to entry for new competitors.
Dividend: CAE suspended its 11-cent-a-share quarterly dividend in March 2020 as the pandemic shut down global travel.
This article appeared in the Internet Wealth Builder on June 26, 2023. For information on how to reprint this article please view this page.
Adam Mayers 
0 comments on “CAE rebounds with air travel”