COVID-19 has hit the firm’s revenues from simulators and training packages, but the company is cutting costs and suspending its dividend to survive the downturn.
The new deals should help capitalize on higher demand as the pandemic ebbs and air travel resumes.
CAE INC. (Toronto symbol CAE) generates value for investors as a leading maker of flight simulators for commercial and military aircraft. It also operates pilot-training schools in over 30 countries and makes mannequins and other medical-simulators for training health professionals.
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Due to COVID-19’s impact on air travel volumes, many airlines cut their orders for new flight simulators. The company delivered just two flight simulators in the quarter ended June 30, 2020, compared to the five it delivered a year earlier.
Over much of the quarter, CAE’s pilot-training facilities have operated at 33% of capacity. That’s because airlines have lowered their spending on training as the pandemic continues to hurt air travel.
In response, CAE suspended its $0.11-a-share quarterly dividend with the June 2020 payment. The company is also cutting jobs and closing some facilities. It expects these moves will cost $100 million. However, the plan should cut $50 million from its annual expenses, starting in fiscal 2022.
However, the likelihood of an effective COVID-19 vaccine should help travel volumes return to normal levels. That would let CAE resume dividend payments in 2021.
What’s more, the surge in online shopping could spur higher simulator demand from operators of cargo air fleets. CAE also gets about half of its revenue from military clients, and its defence-related training facilities continue to operate at close to full capacity.
The company is also preparing for new growth after the pandemic. It recently acquired Netherlands-based Flight Simulation Company B.V. It provides pilot-training services at a facility housing 12 flight simulators near Amsterdam’s Schiphol Airport.
CAE paid $108 million for this business. To put that in context, it earned $34.2 million, or $0.13 a share, in the three months ended September 30, 2020.
To help finance this purchase, the company plans to sell $300 million worth of new shares. Quebec’s public pension plan manager, the Caisse de dépôt et placement du Québec, has agreed to buy another $150 million in shares.
In a separate deal, the company is buying the Canadian simulation and training business of U.S.-based Textron Inc. (New York symbol TXT) for $40 million U.S.
Both of these acquisitions should immediately add to earnings.
CAE’s TSI Dividend Sustainability Rating is Average.
Sept2020 to DEC 2020 what I see is the stock is up 60+% from the September lows is it overbought in todays stock market.In todays markets a drop in the stock market would be bullish the rally is over in my opinion.
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Sept2020 to DEC 2020 what I see is the stock is up 60+% from the September lows is it overbought in todays stock market.In todays markets a drop in the stock market would be bullish the rally is over in my opinion.
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