WinterGems: Industry Research

Bombardier Q1 call

@Govro12 WinterGems Stocks — Fri, 01 May 2026 14:46:12 GMT

Legal Disclaimer: All content published on Wintergems is intended for informational and entertainment purposes only. It is not intended to serve as a recommendation to buy or sell any security. The views expressed are my own and are subject to change without notice. The information provided here is proprietary. I make no representations or warranties as to the accuracy or completeness of the information provided and will not be liable for any losses, injuries, or damages from the display or use of this information. Readers are solely responsible for their own investment decisions.

Bombardier has risen 17% yesterday following the Q1 results.. Here are my notes. After the big jump of both Google and Bombardier last 2 days, these 2 companies are back to over 50% of my portfolio.

Google is a Ultra-Wide Moat Company in Search

Bombardier is a Wide Moat Duopoly in business jets.

I am quite bulish on my other top 10 positions like D-Box, Adyen, eurokai, my 2 Japan micro/small cap Aero Edge and Okano Valve, but the overall performance is dictated by those 2 names..

Some notes on Bombardier Q1 call:

all figures are in USD but stock trade at roughly 285CAD

Very strong orders lead to 1.1B in cash advance

Strong performance in the quarter was driven by growth in customer advances of nearly $1.1 billion, reflecting both strong order activity as well as customer progress payments for orders, which were already in our backlog. This was partially offset by $670 million of inventory investments to support higher delivery activity in the second half of the year as well as a $126 million decrease in other liabilities, which includes incentive plan payments following a very strong 2025 financial performance. Other uses of cash in the quarter came from $33 million in CapEx spend and net cash interest of $74 million.

Finally, we achieved a unit book-to-bill of 3.6 in Q1, supported by broad-based demand and strong orders across all platforms. This level of backlog provides strong visibility for future financial performance, support margin durability and position us well for sustained growth.

Free cash flow machine!

We are increasing our full year 2026 free cash flow guidance. We now expect free cash flow of over $1 billion in '26, while reaffirming guidance on all other financial metrics.

Rising CAPEX level versus previous last few years..

Bombardier is building a new plant for the Challenger series

Looking at the second quarter specifically, we expect similar deliveries and profitability to last year as well as year-over-year improvement in free cash flow. Regarding CapEx, as we noted on our previous call, we plan to continue making incremental investments in 2026 across our product portfolio and facilities to support growth, while still expecting CapEx to remain close to the $300 million level.

Product sales a bit lower in Q1:

As Eric mentioned, we experienced a supplier snag, which affected our deliveries by a handful of aircraft, but which is now resolved. This was offset by a better performance in services and shows the benefit of our revenue diversification strategy, which helped mitigate the overall impact to our Q1 results.

And the quality snag we had, the issue we had in Q1 that prevented us of flying did not come from an engine. So it was another issue that we sort out. We're back and we're flying and those airplanes give us confidence that will happen in the remaining of the year. So we're catching up very nicely right now. So that's the thing.

Aircraft manufacturing and other revenues were $975 million, down $47 million year-over-year. Total deliveries in the quarter were 24 aircraft compared with 23 in the same period last year, with 2 additional medium aircraft and one fewer large aircraft.

On services:

Services business, this business continued to perform exceptionally well, with revenues up 25% year-over-year to $617 million, once again adding to its track record of consistent and robust growth. And we are well positioned for another strong year in aftermarket in 2026.

on deleveraging

Positive momentum has continued in April with S&P Global Ratings changing our outlook to positive on April 14. And we announced earlier this morning the early redemption of our CAD 150 million debenture, representing just under USD 110 million. When we put it all together, we will have repaid $860 million of debt by the end of Q2, resulting in annual interest savings of more than $52 million- thats 0.5$EPS USD in savings

On margin

Our gross margin was slightly higher than last year, seeing a 10-basis points improvement.

but spending more on SG&A on defense and future services…

Below gross margin, our spending to support future services and defense growth was up a bit, resulting in higher SG&A as a percentage of revenues and increased R&D spending. The resulting Q1 margin decline was in line with our expectations entering the year, and we continue to expect full year margins to be similar to last year. Adjusted EBITDA for the quarter was $246 million compared to $248 million in the first quarter of '25. Adjusted EBITDA margin was 15.4%, down about 90 basis points year-over-year.

Very strong underlying demand in terms of flying hours

And the other thing also is despite everything going on right now, the war with Iran and Ukraine, we see still growth in flying hours, which, again, for us, fleet is growing, the hours are growing. I don’t know, I was just looking at the number. We’ve seen on our platform, if you think of the Global Q1-over-Q1, 8% more flying hours since last year, 6% more flying hours on the Challenger.

On defense

We are building a good backlog right now. Last year, we're at about $1.5 billion on defense. We are expecting similar, if not better this year. So we had no deliveries in the first quarter, but the deliveries are coming, starting soon, and we're very enthusiastic about the defense business.

And if you look at the opportunity, you've heard about NATO looking at AWACS last week. We're partnering with both Saab and L3Harris on the AEW&C aircraft solution. Both are on the Global 5500. So some of them are waiting on some decision, but things are really looking promising in that field.

Global 8000 is replacing the Global 7500

Yes. So no, it’s completely done. Since January 1, we are only delivering Global 8000. So it went very smooth. As you know, we certified the plane in Canada first in the U.S. and in Europe, all according to our plan. So we produced the last 7500 last year. And it’s been a very, very smooth transition throughout the first quarter.

The other piece also where we have quite a bit of momentum is, as you know, we have a 200-plus installed base of 7500 flying out there. And the customer have the possibility to buy our service, Bolton in service to upgrade their 7500 to become an 8000. So a lot of customers have elected to do that, which preserve their value of the plane. So we have a lot going on at the service center right now in that regards. You’ve seen some announcement of fleet operator recently that did that. So we’re very enthusiastic about also that momentum.

On rising delivery rate

Yes. On the Challenger, we're building capacity right now. We've announced it in January, and that's progressing very well. We have had significant demand on the Challenger, long-term demand also, as you know with fleet operators. So we feel very confident because the fleet operator are all buying the 3500 these days, and that's visibility for us probably for the next 10 years. So that's helpful to make a decision that you want to make for the long run. So we're feeling pretty good about the Challenger piece.

Valuation

The Company is guiding to over 1B of Free cash flow even if they are increasing inventories and investing in a new plant for the Challenger series. I would guess that Free cash flow ends-up close to 1.2B so the company is trading at a FCF to EV of 5%. The stock trade at roughly 210USD and we can round up to the number of shares to 100m shares. So easy to calculate. Considering that the only reason for not increasing sales is the worldwide supplier and capacity constraints but eventually this will be figure out and we have strong visibility that sales (both product and services) will raise steadily over the next 5 years, we should see a steady rise in income over the next 5 years. Net Debt represents now a very small % of the Enterprise Value. They paid down 750m in the Quarter and might pay back a 700m Bonds due in 2029 later this year. M&A in Defense or Services is certainly in the horizon, now that debt repayment is less critical.

Feel free to ask any questions here or comments!

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Alani Nu re-accelerating under Celsius System

@Govro12 WinterGems Stocks — Tue, 07 Apr 2026 17:49:57 GMT

Cosmic Stardust is a good name for the rocket like growth of Alani Nu since it was integrated into the Celsius System!

I was revisiting Celsius Holding this week as it plunged to interesting level of 34$ on the news that Costco is starting to sell private label energy drink with a look highly similar to Celsius energy drink. Costco represents 10% of sales, so impact is limited.

1 Year price action of Celsius Holding:

So here is what is interesting. Oftentimes, a company buys a popular product and due to integration or corporate culture issues or egos, growth starts to slow. This is not the case here. A year ago, Alani Nu sales growth started to slow down at around 50% YoY growth. Q3 2024 and Q4 2024 sales were $164 million and $154 million respectively. No visibility on Q1, but once Alani Nu was integrated into the Celsius System (on 1st April 2025) and progressively into the Pepsi distribution system later in the year, sales re-accelerated in the triple digits.

You can see the Alani Nu sales and the big Q2 2025 jump in sales once the acquisition was completed.

What should we expect for 2026?

In high growth story, I typically use a conservative projection of simply inter-poling absolute numbers. You can observe in this case that Alani Nu sales are adding $35 million sequentially pretty consistently. Assuming this scenario, sales in 2026 could be 390 million (adjusted for seasonally weak Q1), 425 million (conservative), 460 million, 495 million. In this straight line linear projection, Alani sales would be $1770 million.

Here is what management said about Alani Nu and Celsius in the latest call:

As expected, the transition of Alani into Pepsi drove increased orders and strong execution, which in turn impacted reported results for brand CELSIUS as we manage the timing and sequencing of inventory movements within the Pepsi system as we balance the Alani load-in with total inventory across the network. As a result, scanner data is a healthy 12.8% for the quarter.

As a result, for the full year, brand CELSIUS delivered $1.46 billion of net sales, growing 7.5% year-over-year. So combining everything for the fourth quarter, consolidated revenue was approximately $722 million and full year consolidated revenue was $2.5 billion, including having 2 billion-dollar brands.

CELSIUS brand retail sales increased 12.8% year over year for the 13-week period ended Dec. 28, 2025,¹⁵and brand CELSIUS held a 10.9% dollar share in the U.S. RTD energy category for the period¹⁶.

Alani Nu retail sales increased 76.9% year over year for the 13-week period ended Dec. 28, 2025,¹⁷continuing its category outperformance driven by strong innovation, distribution and adoption by new consumers. The brand held a 6.7% dollar share in the U.S. RTD energy category for the period¹⁸. Celsius Holdings acquired the Alani Nu brand on April 1, 2025.

So scanner data is showing a 12.8% growth for the quarter and sales for Celsius reached $1.46 billion in net sales, versus $1.355 billion in 2024.

As such, if we project similar growth of 8% for 2026, Celsius brand could lead to $1 570 million.

Rockstar revenue in latest quarter was $45 million. So assuming some further decline, we could use $150 million in 2026 for Rockstar.

Management is projecting a return to the low 50% margin in 2026, so lets increase operating margin to 22% from 21.5%.

So sales should be close to $3 500 million in 2026, up around 40%. This would lead to a operating income of $770 million. 2025 EBIT is $540 million The stock is trading at 20x EV/EBIT trailing.

It has about 250 million in net debt plus a $1.7 billion in preference shares issued to Pepsi, so add 2 billion to the market cap to get the EV. By the end of 2026, the stock should be net cash.

So next year, based on the growth scenario described below, if the stock trades at the same ratio of 20x EV/EBIT, the stock should rebound to 56$.

Fat pitch in my opinion. Love those 40/20… No investment advice, do your own research. Lets discuss below what are your views? I have not describe both brands in terms of positioning etc.. but feel free to ask questions or comments even anecdotic.

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Portfolio Q1 2026 + D-Box

@Govro12 WinterGems Stocks — Sun, 29 Mar 2026 15:53:21 GMT

The following table shows the top portfolio holdings. I included the industry it is operating in, the current price, the price at the closing of December 2025, the YTD performance, the initial year of acquisition and related trades.

As we are closing the first quarter, we can safely say that we had quite a difficult quarter where 9 stocks or 56% of the positions were down.

The high volatility has allowed me to enter (or re-enter) in 6 positions:

Robertet (Re-enter)
ARM
Agnico Eagle
Fico
Pernod Ricard (Re-enter)

I encourage you to ask any questions related to one of these positions or existing one in the comment below. This is the fun part for me:

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Country Split

Below is the country split of the top positions now and at the start of 2025 and 2024:

The country split of the top positions is more diversified than ever. It was not the case a few years back. At the start of 2024, I was mostly invested in USA, with 10 positions. Although anecdotic, I am observing that for the 30-40 consumer centric companies that I follow, these companies are negatively impacted by the health of the USA consumer market. The political and economical division inside of America is not helping. I am particularly concern by the decline in purchasing power of the American middle class. As such, I decided to recenter around markets that I am comfortable with but outside of USA, markets that often provided more value and with less internal division, namely Canada (4), Japan (3), and Western Europe (6).

D-Box

D-Box is my 3rd largest Canadian position. D-Box had an exceptional year in 2025, the first time it was able to turn a significant profit.

D-Box is down 20% YTD but normal consolidation after a crazy run. Also the largest investor (referred below as the Activist) is trimming.

D-Box is the most important entertainment haptic company in the world. D-Box has been deployed in 1135 cinema theaters and the technology is expected to be deployed in more and more theaters, a 10-15% increase per year is expected. D-Box is still a small cap with only 222m shares currently trading at 75cents, trading at at market value of 165 million CAD. D-Box gets a royalty stream from all tickets purchased using the D-Box technology. It gets 10-15% of the premium part of the ticket, the premium part is around 8 USD. D-Box encodes in-house all movie released with D-Box experience.

The background

D-Box is a micro-cap with an innovative technology but an history of loosing money since it started:

The came an activist Daniel Marx of StoneHouse Capital who bought a 10% stake (roughly) and put pressure on the management to focus on the theater business segment which generates royalties versus the other segments (race tracking simulation and industry simulation) and cut expenses. It also help reshuffle the board and get more seasoned management in the cinema business.

New CEO Naveen Prasad

Naveen Prasad became CEO in April 2025 and he hired in November an ex-Sony Pictures executives Scott Sheer. My understanding is that the current CEO is traveling almost non stop to meet cinema operators to drive get new screens to get D-Box seats installed. It shows in the results, as 80 new screens were equipped in the December quarter, a record which represents a 7.5% increase in the number of active screens in just one quarter. The effect of the CEO - think Alain Bouchard ! - on a microcap can be so significant. A recent Scuttlebut investigation from from Sohra Capital where he surveyed the number of screens for Cinemark alone, has shown an increase 118 screen since end of October. Since Hoyt’s cinema also likely rollout a good amount of screens in those 2 quarters, - Hoyt’s announced in June 2025 the addition of 539 new D-Box seats for the next 12 month, if we take Jon mid-range estimate and add 10 screens from other operators, we could get to close to 70 screens in Q1. In this case, we would be firmly in the 15%-20% increase range of new theater screens in the past 12 month. This would be a sharp acceleration thanks to the new management.

@JonCukierwar - if this help there was just a few theaters in Oct based on a linkedin post I recall but cannot retrieve","username":"govro12","name":"govro12","profile_image_url":"https://pbs.substack.com/profile_images/2025567445264592896/EvfrgCMa_normal.jpg","date":"2026-03-23T21:29:51.000Z","photos":[],"quoted_tweet":{"full_text":"Data scraping of Cinemark’s website suggests D-BOX $DBO.TO may have installed 44-70 new screens with Cinemark U.S. alone in Q4 FY26 (Jan-Mar 2026 thru 3/21/2026).\n\nThis past Saturday I scraped every Cinemark U.S. theater for D-BOX auditoriums. The result was 467 total D-BOX","username":"JonCukierwar","name":"Jon Cukierwar","profile_image_url":"https://pbs.substack.com/profile_images/1681377726593105927/DFhQXcy2_normal.jpg"},"reply_count":1,"retweet_count":0,"like_count":8,"impression_count":985,"expanded_url":null,"video_url":null,"belowTheFold":true}" data-component-name="Twitter2ToDOM">

It took 9 quarter to increase the number of screens by 200. Under the new management, in just 3 quarters, D-Box added 35, 37 and 81 new screen or 153 screens in total. The 200 new screens might be achieved in just a year with the new management. More or less double the rate. Note that 30 screens that were never activated and installed under the previous management- we suspect installed in Russia - were removed from the total in the last Quarter.

Operating Margin

The other thing positive was a significant reduction in payroll. Management talks about re-priorities, but I suspect that some expenses were unjustified. We just have a tighter ship now. Here are the quarterly expenses of Sales and marketing and G&A in 000s CAD. You can observe the reduction starting in Q1 2025 for both.

Gross margin of system sales for the theater, sim racing and simulation (excluding royalties) have also sharply increase.

Latest 9month results

Cutting expenses, adding more screens plus a surge in royalties in the Summer quarters as resulted it sharp increase in operating income, going from 3.5 million CAD to 9.2 million CAD. I am discarded the positive effect of the 6.4 million tax recoveries. As such, the last 12 month of D-Box operating has generated 10 million CAD.

Cash machine

D-Box is a high tech company, generating most of its value by matching content ( movies, race track experience) with haptic code to create an immersive experience. It does make its own actuator, but do not need to invest large sum of Capex to keep the actuator business up to date. Most of its profits comes from royalties with some systems sales at a now more healthy 38% gross margin.

If you look at the latest cash flow below, it was able to generate 8 million in cash in the latest 9 month. Matching closely operating income. It currently has 16m in cash.

No tax for another 3 years

The company has accumulated a net deficit of 35 million, so at current rate, we have 3 years of income without paying tax.

How to value D-Box

Since D-Box is not paying tax, the best way to value the company is to look at the operating income, which removes non operating financial items. D-Box has earned 10m CAD in operating income or 0.045cents per share. It has 16m in cash, no debt so around 7 cents of cash per share. The Company has authorized to use its cash to purchase up to 10% of its shares or 15m CAD at current price. The stock trades at a PE (ex cash) of 15x. Earnings is expected to grow at 15-20% over the next following years based on:

1) New theaters rollout of D-Box representing a 10-15% growth per year, but likely 20% new adds in 2026 as discussed earlier.

2) Trailing earnings (calendar 2025) is based from a depressed 2025 box office likely the after effect of the 2023 writer and actor strike. 2026 NA Box office is expected to increase by 10%. There is strong correlation between NA box office over a trailing 12 month period and the operating profit and royalties that D-Box gets from viewing.

3) The following figure shows the ratio of the quarterly royalties per screen to the NA box office. Due to seasonality and movie content, management has advised us to use the 12 month moving average. This ratio makes only sense in a relative fashion. I use the royalties that the company got in one quarter per screen in Canadian dollar time 1 million and I divided that number by the North American Box Office realized in the same quarter in US Dollar. In any case, as we can see, D-Box gets a larger and larger share of the box office per screen from 1.25 in 2022 to 1.5 current. This upward trend is likely to continue fueling additional growth.

Expected operating income for calendar 2026

Based on the preceding points, an optimistic forecast - if management keeps hitting on all cylinders like they just did - could see an increase of 20% on the number of screens for Q2 2026 and onwards, an increase of 10% box office, and possibly a 5% increase in the ratio of royalties per screen over the Box office numbers.

This would result in a increase of 38% of the royalties revenue in calendar 2026. In 2025, royalties was 13.8 million, and the Company was able to achieve 11.2 million in EBIT or 81% of the royalty stream. I am adding 1.2 million of restructuring charge to the EBIT.

In the optimistic scenario, royalties could get as high as 19 million. Assuming the same ratio, this could lead to 15.39. Assuming a 10% repurchase or 20m shares in 2026, we could get as high as 0.075cents in EPS and the company would still have 15m in cash that is generated by the free cash flow in 2026. Such a sharp increase in EPS - 66% in operating income YoY would certainly lead to get the stock to trade at 20x PE.

In the conservative scenario, screens would increase by 15%, Box office would disapoints and grow MSD (5%) and without any ratio increase of royalties screen per box office NA. As such, royalties would still increase by 21% or to 16.7 million. Using the same 81% ratio, we would get to 13.6 million. Assuming just a 3% buyback, we would get to 118m shares and 0.063 cents per share. In this scenario, the stock might trade more likely at 15x earnings. the cash would pile up to 25 million.

Do the math.. Do your own research. This is microcap La La Land be careful.

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Aeroedge

@Govro12 WinterGems Stocks — Sun, 15 Mar 2026 16:04:12 GMT

Published on December 28th 2025 as part of the Danger zone post which is now in archive. I Decided to extract the part related to Aeroedge since I have not seen much analysis covering this small cap stock. I am providing a quick update first:

The process of making Titanium Blades is requires 5 complex steps, which starts with using waterjet, high precision machining and grinding as shown here.

Since the December post, the stock has more than doubled. Goldman Sachs has recommended this stock in January and Aero Edge published fantastic results on February 13th - more on this later. The stock is now trading at roughly 50x earnings now. Still might be good to track this stock as this stock is very volatile and readers might have a chance to catch this one. This is currently my largest Japanese position helped by the sharp increase.

This year will be a transformative for Aeroedge.

It should become the second source of manufacturing titanium blades for another commercial engine OEM. Although not disclosed, we believe this is Pratt & Whitney and likely to become the second source for the PW1100G used in the Airbus 320neo. As discussed below, P&W is having issue of reliability on their titanium blades.
Aeroedge should start making components for the next generation fighter jet engine developed jointly for Japan, Italy and UK - Rolls Royce is involved.
AeroEdge will start processing internally the raw titanium received from generic suppliers instead of relying on processed titanium block received from Safran. Allowing Aero Edge to increase its share of the blade business. Aero Edge is currently constrained to 40% due to intrants limitation from Safran.

AeroEdge published impressive results on February 13th 2026 as some of the program mentioned previously has started to ramp-up. We are still in early stage of those. Revenue increase 46% and and profits roughly 2.5x. Assuming similar results in the second half, the company could earn 90yen EPS. So close to 50x earnings. We are in exponential growth territory here, so very difficult to project earnings in 3 years from now.

Related to item 3, This is what the company had to say:

While demand for titanium-aluminum blades has expanded in this way, the supply of materials for titanium-aluminum blades has been dependent on only one European company, and this dependence has become a business risk. As a countermeasure to this risk, our company has been working for several years to develop new materials with the aim of building a vertically integrated system that handles everything from material supply to processing and to expand profits. As a result, we have made progress toward mass production of the new material and have concluded an agreement with SAFRAN of France regarding the supply of the new material and the expansion of market share. Mass production and supply of the new material will begin in stages from the next fiscal year, and from 2028, our market share is expected to expand from the current 40% to the high 40s. To address these issues, we are proceeding with preparations for mass production, including the construction of a laboratory building for new materials on newly acquired land. In conjunction with this, we are also working on the progress of mass production development

So expect in 2027 and 2028 to increase its shares of the LPT blades from 40% to high 40% and a higher share of the value (operating income margin).

Regarding item 1 and 2:

Regarding our efforts toward new mass production projects, we are simultaneously working on the mass production launch of two aircraft engine components, distinct from the LEAP engine, at our new factory, which was completed in 2024, and are proceeding with preparations for the start of mass production from the second half of this fiscal year.

So expect more revenue growth in second half once the mass production starts. They already got some revenue in this quarter making some samples for certification and testing I suspect.

Original Post published in December 29th as part of the Danger Zone post

AeroEdge

Aeroedge makes titanium aluminide blades for the LEAP aircraft engine, the Low Pressure blades at the rear of the engine as shown below. The exhaust gas, after passing through the high-pressure turbine, still has significant energy. The LPT blades spin as this gas flows over them, converting that thermal energy into mechanical energy. These blades made of titanium aluminide are very complex to manufacture, but are 50% lighter than traditional blades used (made of Nickel).

Correction from original post: The LPT blades are under the responsibility of Safran in the CFM partnership of the LEAP engine. GE makes the high pressure part. So AeroEdge is the secondary source for supplying LPT blades for Safran. My understanding is that Safran is manufacturing around 60% portion of the LPT blades inhouse. In my original piece, I mentioned that a GE subsidiary Avio Aero was also making LPT blades. This is correct but for another GE engine, not the LEAP. GE makes the HPT blades using a 3d printing techniques with titanium powder inhouse. This process using 3d printing for Titanium can be very tricky. P&W is having issuee with its own manufacturing of titanium blades with 3d printing. P&W numerous recalls on the PW1100G used in the Airbus 320 NEO - and the main headache of Airbus production ramp-up is due to contamination of the titanium powder used in titanium blades. Something related to the oxyde level.

In a away, AeroEdge could become Airbus most important supplier indirectly. Solving the P&W issue and helping Safran in ramping up the LEAP.

The LEAP engine populates 60% of the Airbus 320Neo and 100% of the Boeing 737Max. These 2 planes represent the vast majority (80% in the case of Airbus) of the total commercial airplane deliveries of Airbus and Boeing. The LEAP engine are manufactured by a joint venture of Safran and GE called CFM International (50% split).

Both the Airbus 320Neo and Boeing 737Max is extremely popular with backlog of more than 12 years ahead. However, both Airbus and Boeing are struggling to increase delivery rates. Boeing is also facing some serious reliability issues so FAA is limiting the number of delivery per month. The increase in rate for Airbus has been slow but more progressive. It should get to 75 monthly planes in 2027. Boeing should reach 430 planes in 2025 (36 planes per month) and 50 planes in 2026. The impact of Boeing production ramp-up is more significative for the LEAP engine since 100% of the aircraft use the LEAP engine.

The company is forecasting a sharp increase of the blades to be delivered in 2026 (+27%) and 2027 (+45 to +55%). This is explained not only by the increase number of aircraft deliveries towards 2027, but also by a new agreement with Safran to increase its share of the LP blade market from 40% to high 40%.

Furthermore, the company has signed a contract with a major engine maker to supply a key component. It could by Pratt and Whitney which also uses titanium aluminide blades for its PW1100g engine used in the Airbus 320Neo. Just speculating. The production of this new contract will start in 2026.

Finally, AeroEdge has internalize the production of the Titanium Aluminide raw material and will start using this raw material instead of relying on Safran.

So we have strong visibility for future profitable growth and as such the current EV/EBIT of 31 is justified and with a PEG of less than 1, we will slowly increasing on weakness. Adding

End of Original Post published in December 29th as part of the Danger Zone post

Feel free to post any questions or comments

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Part2: Industry Research on Video Games in Japan : SONY

@Govro12 WinterGems Stocks — Thu, 12 Mar 2026 21:31:27 GMT

Summary: Both Sony Games and Sony Music have higher sales and higher operating income than their peers Nintendo and Universal Music respectively. This was not the case a few years back, but the mainstream narrative that Nintendo and Universal Music are superior business hasn’t change and the investment community still views Nintendo and UMG as the leaders and the most valuable assets in their respective industry. Nintendo is worth 60 billion USD in enterprise value and 72 billion USD in market value alone. Universal Music is currently at a enterprise value of 41 billion USD - although was trading at a much higher price not long ago. Sony Music is trending to earn 45% more in operating income than UMG based of fiscal 2025 ending March 2026. On the same ratio, Sony Music could trade at 60 billion USD. Sony as a whole trade at 130 billion USD. Sony has 3 other business, including a dominant position in image sensor which should generate 350 billion yen or 2.3 billion USD in current fiscal year. Last year, the image sensor division earned 260 billion yen so operating income has increased by 34%. Such a business should probably trade at more than 20x operating income or 50 billion USD. These 3 business alone are worth (65+60+50) 175 billion USD. Add Sony Pictures (20 billion USD( and Sony Entertainment (10 billion USD) and we are at 205 billion USD. So the market value of these 5 entities could be valued at roughly 50% higher than current market value. Sony has generated 10 billion USD in the last 12 month and is net cash. Since its 3 main segments should be valued at 20x operating income - as a whole Sony should be trading at 20x operating income in my opinion.

ME with my favorite orange jeans casually chating with Tom Holland on the reason why Sony is trading at such a discount!

Spider man movie rights are the most important IP for Sony Pictures. New Spider Man movie will come out on July 31st.

Part 1 ReCap

Before we start the analysis on Sony, lets go over again over the summary table of the 5 companies we have introduced in Part 1 of the Industry research on video games in Japan.

In Part 1, we have focused on the console wars, and concluded that Sony PS5 is winning in terms of performance, unit sold and critically software attach rate. X-Box has become a marginal console in this cycle with only 2m units sold in 2025. Nintendo had a very good start and sold 17.3m units in 2025. PS5 - a 5 year old console has sold 17.2m units to reach 92m units since launch.

We are forecasting that due to the underwhelming performance in CPU and GPU of the Switch 2 compared to PS5, Nintendo 3rd party revenue from the Switch 2 will still be limited in this cycle as the previous one. Furthermore, the capability to sell AAA 3rd party titles on the Switch 2 will be significantly limited after 2026-2027 timeframe. In 2028, hardware requirements for AAA titles will increase significantly after the likely launch of the PS6 in 2027.

We then turned our focus on Capcom and we were impressed by the results growth since 2015:

Unit sales has quadrupled (4X) since 2015 from 13m units to 54m units projected.
Sales has tripled (3X)
Operating income has multiplied by seven (7X) .

Capcom is one the most consisting and steady grower in the industry. A large portion of the sales is related to catalog sales so it is not as hit driven. It has 3 major franchises: Resident Evil, Monster Hunters and Street Fighter. Last week, Capcom released Resident Evil 9, which has sold 5 million units in just 3 days, its fastest release to reach 5 million copies. Game reviews are almost perfect. This bodes well for fiscal 2026 and fiscal 2027. RE9 will be very significant for this mid cap company. The stock did go up 10% on the news up from when we published 2 weeks ago but still trade at a reasonable 18x EV/EBIT.

Nintendo raised almost 15% since our post. It is trading at a more fairly valued 25x EV/EBIT.

Sony has been down a few % since our post and is trading at the cheapest ratio of the list. Lets move to Sony and look at the Sony Game and Network Service first:

Sony Game and Network Services

The IP

God of War is one of the most important IP for Sony video game. Some of the games released over the last 3 consoles shown below:

Although not owned by Sony, Spider man developed by internally owned Insomniac studio is the most popular game developed by Sony for the PS5. This is a critical IP for PS5. Gran Turismo is a very consistent IP for Sony have generated 90m units over its history. The last of US and Uncharted developed by naughty dogs (acquired in 2001) have both generated 40m units each.

Since the release of the PS5, in November 2020, the Revenue of the Sony G&NS division has more than doubled. Sales shown are in million yen.

The early years of a new platform often leads to negative earnings, as hardware platform in the early cycle are sold at lost, but not this time:

Fiscal 2020 was the worst year in their console cycle - it is the year where gamers basically stop making purchase of the old console and where both developers and gamers refrain from releasing/ buying games. From 2021 to 2024, the operating income of Sony was impacted by selling a large amount of consoles at loss and a limited amount of PS5 active. Sony gets a 30% cut from game sold on the PS5. Sony does not disclose its operating income/loss separately related to hardware.

However, the slide below part of the Q3 2025 presentation clearly state the losses from hardware was smaller YoY, so hardware is still sold at a loss even in 2025.

The gaming division is currently projecting to make 510 billion yen or 3.24 billion USD in operating income in fiscal 2025 (ending March 2026), or more than double the operating income it made in 2020, and 65% more than in 2019 in the later part of the previous console cycle (PS4).

I have captured the sales split of the gaming console business since 2019.

As shown below, higher margins sales related to digital software and network services had plateaued in 2021-2023, after a jump from 2020, but then have climbed fast in fiscal 2024 and fiscal 2025, thus the significant rise in operating income.

In contrast, hardware sales with negative operating margin, which have risen since the launch in fiscal 2021, has more of less plateaued since 2023.

The chart shows the number of PS5 sold since fiscal 2021.

9months fiscal 2026 sales as shown below is following the same trend with high single digit growth in digital software, low double digit growth in Network Services and and mid to high single digit decline in hardware sales.

To sum up, as I mentioned in the previous post, PS5 has won the 3rd party AAA game console wars and is reaping the benefits. The Switch 2 released last year, is already CPU constrained for high end game released this year and must be downframed at 30FPS to make it playable. Furthermore, complex open world game like GTA6 will not be supported by the brand new Switch 2 due to CPU limitation. X-Box will likely release the Xbox Helix when PlayStation 6 will be released in 2027 at a much higher price than PS6. There is a high likelyhood that the next console market will be dominated by PS6 again.

Sony must be doing something right since the latest 2 consoles have generated significantly more income than its previous iterations:

This slide was published last year, so it does not take into account the current fiscal year, so considering 2025, PS5 has already generated 16.3B of operating income, and by the time PS6 is out, will probably generate around 23-24B of income, assuming 7B of operating income for 2026 and 2027 in total. This cycle will thus generate almost 3 times what PS4 has generated, which was the best console in terms of operating income before.

Nintendo historical results comparison

The following chart captures sales from Sony and Nintendo since 2019. Sony seems to be on a much higher growth trajectory than Nintendo since the launch of the PS5. It will be interesting to see how sales will translate on a going forward for 2027 and beyond.

If we look at the operating income, Nintendo was generating a lot more income since the launch of PS5 in 2020 until fiscal 2024. The reasons were explained in the previous section. Note that in 2019, both company were generating the same level of income.

If we compare the console market in terms of users, Sony has stated in the latest quarter that it has 132m monthly users. In contrast, Nintendo do not publish monthly users, only yearly users, ie users that have used a Nintendo software on the Switch (or Switch2) in the last 12 month and was connected to the internet. The Annual Playing Users is currently at 128m and to convert to monthly users, some estimates considers using a 70% factor, leading to around 90m users. Thus, Sony monthly users is about 46% higher than Nintendo.

If we look at the 8 year Switch 1 console cycle - the total amount of operating income achieved by Nintendo is 23.4B. So, Nintendo thanks to its very strong IP has generated about the same income for the Switch 1 than Sony is projected for the PS5 cycle.

As I discussed in the latest post, the GTA6 effect will be a big push towards the PS5 in the later part of this year. The GTA has a huge pent-up demand, and will be running only on PS5 and Xbox at launch. Hardcore PC gamer may not want to wait 1 year plus and may buy a PS5 or PS5Pro. Xbox being marginalized - with only 2m unit shipped in 2025 - most of sales will be on PS5. It is expected that 40m copies of GTA6 will be sold in the first year. The Switch 2 will not be able to support GTA6. PC support will come later, a year or 2 later. Expect close to a Billion USD in operating profit for Sony to come from this game alone over the fiscal 2027 and fiscal 2028 based on a 30% cut.

In summary,

Switch 1 and PS5 will generate about the same operating income for Nintendo and Sony respectively (about 23-24B).
PS5 will have a very strong end of cycle due the GTA6 effect.
Switch 2 had a good start and sales will be mostly driven by first party release as in the previous cycle. 3rd party sales will remain marginal especially when PS6 will come out.
I suspect that PS6 and Switch 2 will earn similar operating income like in the previous cycle but likely higher. Conservative estimates for Switch 2 is around 30 billion USD to 40 billion USD for the full cycle - ending 2034. I suspect PS6 will earn similar level.

As such, I would make the case that Sony game market value should be similar to Nintendo or about 65 billion USD. Considering that Nintendo is viewed as currently undervalued versus historical average, that market value for Sony Games could also be considered undervalued.

Now lets turn to Sony Music:

Sony Music

Sony Music has acquired over the past 40 years, some of the largest music labels.

Columbia Records (1988)

Contemporary: Beyoncé, Adele, Harry Styles, Miley Cyrus, Lil Nas X, and Rosalía.
Catalog : Bruce Springsteen, Bob Dylan, Celine Dion, AC/DC, Billy Joel, and Johnny Cash.

RCA Records (2004)

Contemporary: SZA, Doja Cat, Tate McRae, P!nk, Shakira, Justin Timberlake, Alicia Keys, and A$AP Rocky.
Catalog: Elvis Presley, Whitney Houston, and David Bowie.

Epic Records

Contemporary : Travis Scott, Future, 21 Savage, Tyla, and Meghan Trainor.
Catalog: Michael Jackson, Ozzy Osbourne, and Sade.

The Orchard (Distribution)

Music distribution company that provides services to independent labels. Through this arm, Sony handles the global distribution for Bad Bunny.

Sony Publishing is the largest publisher in the world since the EMI merger:

Catalog: Queen, Carole King, Pink Floyd, and the legendary Motown catalog (Stevie Wonder, Marvin Gaye, The Supremes).
Contemporary: Kanye West, Pharrell Williams, Drake, P!nk, Calvin Harris, Sia, and Alicia Keys.

Publishing only gets 15% of the streaming revenue, versus 50-55% for the recording label.

Recording music represents 350 billion yen of sales versus 108 billion yen for Publishing in the latest quarter.

The following shows Sony Music sales since 2019. 2026 is based on the forecast for the year ending March 2026.

Sales have grown strongly about 2.5x since 2019 for a CAGR of 14%.

Operating income did grow even faster (3.4x) as operating margin increased by 400BP resulting in a CAGR of 19.4%. Operating income and sales have been accelerating in recent years. Now, operating income represents 2.8 billion USD.

Such a high growth business and a light business company should be worth at least 20x operating income or 60 billion USD at a minimum.

Comparison with Universal Music

The mainstream narrative is that Universal Music Group is the most valuable and important music label of the industry, but when I compare sales in the recent years, I find that Sony Music sales has surpassed Universal Music group this year. Please note that we compared Sony fiscal year ending March 2026 with UMG calendar year ending year 2025. Universal sales has been growing much slower in the past several years - CAGR of 5.6% versus Sony Music 14%.

Sony is generating significantly more operating income about 45%.

As I mention before, Sony with operating income of 2.8 billion USD should be worth a range of 60 billion to 70 billion USD considering recent growth (19% CAGR on operating income) and the business light model. This is truly a gem in the Sony empire.

Imaging & Sensing Solutions

Sales increase in 2025 is due to the continued trend toward larger size, higher image quality and higher performance image sensors for mobile products, primarily in high-end smartphones, and the resolution of the manufacturing yield issues that began in the fiscal year ended March 31, 2024, which led to both sales and operating income reaching record highs.

Sony has a dominating market share of the image sensors business with 57% market share versus 53% a few years back. Sony is the exclusive image sensor provider for Apple. It is aiming for 60% market share. Image sensors are used in smartphone (largest market), but critical emerging markets in cars, robots and drones.

Sales in this segment has more than doubled since since 2021.

Operating income has grown steadily. Operating income margin is projected to reach 16%, up from 14-15% level in previous year. At 2.3 billion USD, operating income growing quickly with a dominant market share of 53% - Samsung is #2 - and new business segments in car, drones and robots, this business is worth more than 20x operating income. or about 50B in my opinion.

Latest Q3 updates

Sony released on Feb. 6th their latest forecast for fiscal 2025. Sony is projecting to achieve an operating income of 1540 billion yen for fiscal 2025 or 10 billion USD, which represent a 20% increase over fiscal 2024. The majority of the increase is coming from Sony Game and Sonic Music.

Shareholder yields

Shareholder yields is define by the sum of buybacks, dividends and paying back debt.

Sony has bought back around 1.5% of shares per year in the last 2 years, and is planning to buyback another 90m shares in the first 5 months of this year. 25m shares was bought just in the last month.

The Sony Financial spin off has also significantly clean up the balance sheet resulting in a sharp drop in net long term debt by 20 billion USD in the last 12 month. Sony still owns 16% of Sony Financial and could sell more shares of Sony Financial to buy back more shares.

Sony also pays 22.5 yen per share in dividends or about 0.5% yield.

Historical valuation

Sony is currently trading at a significant discount to historical valuation - 12.5x EV/EBIT according to TIKR versus a mean of 16x.

Pros

Sony games business has seen a sharp increase in operating profit in the last 2 years (fiscal 2024 and fiscal 2025 ending March 2026), and should just accelerate in fiscal 2026 with some strong releases in 2026 including GTA6 release. At least for this cycle, the vast majority of AAA 3rd party consoles software sales ends up being PS5 Software Sales.

Sony balance sheet is now clean with no debt after the spin off of Sony Financial which should allow Sony to accelerate buybacks.

Sony Music has more sales in fiscal 2026 and has generated consistently higher operating income than Universal Music group in recent years. Currently projected to generate 40% to 45% more operating income than UMG in current fiscal year.

The image sensor business is dominant and operating income has accelerated in recent years at 20% CAGR.

Those 3 business Games, Music and image sensor represents 85% of the market value of Sony group, are dominant in their respective industry and are growing at double digits.

There are good synergies between Sony Music, Sony Pictures and Sony Gaming in terms of sharing IPs. There is some synergies between Sony entertainment and Sony Games (hardware).

Earnings over the next 2 years are expected to be considerably higher (GTA 6 effect on Sony Games, continued strength for Sony Music and Image sensor).

Currently trading at only 13x EV/EBIT, lower than historical average.

Cons

Sony entertainment is operating in a very competitive environment - consumer electronics.

There is little synergies between Sony Image sensor, a semiconductor pure play and the rest of the business.

Sony Games is cyclical - following a 8 year console cycle. Each console cycle can lead to market share gain or loss.

Earnings for fiscal 2028 and fiscal 2029 might be down due to the release of the PS6.

Memory price spike could lead to more operating losses from hardware than projected.

The USA is the most important market and tariff is causing a headwind to consumer electronics and hardware sales. Sony Music, Sony Pictures and SW sales are immune to tariff.

Sony management does not have skin in the game, and is not lead by a founder. We prefer founder led company or family own business.

The image sensor business is capex intensive although Sony has recently made a deal with TSMC.

It is currently plan to cover Bandai Namco and Square Enix in the next post.

All posts will remain public for a two-month window before moving to the archive. This provides ample time for our community to read and discuss the analysis while the thesis is fresh.

However, my research is proprietary. By limiting long-term public access, I am taking necessary steps to protect the content. I write for individual investors—not to provide free data for search engine scrapers, AI training models, or institutional funds.

I sincerely hope you you enjoy this post and feel free to post some comments below:

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Bombardier - What a ride!

@Govro12 WinterGems Stocks — Sun, 22 Feb 2026 06:50:15 GMT

I am writing this down on a quiet Saturday night while getting over a cold for too many days that I got from running too often in the wet snow… But the latest result from Bombardier, the latest SCOTUS decision on IEEPA followed by the section 122 tariff counterattack was too good to pass. I am writing this in one shot without thinking too much solely based on my recollection, no fact checked take this with a grain of salt and enjoy my rumblings...

Legal Disclaimer: All content published on Wintergems is intended for informational and entertainment purposes only. It is not intended to serve as a recommendation to buy or sell any security. The views expressed are my own and are subject to change without notice. The information provied here is proprietary. I make no representations or warranties as to the accuracy or completeness of the information provided and will not be liable for any losses, injuries, or damages from the display or use of this information. Readers are solely responsi…

Industry research on video games in Japan

@Govro12 WinterGems Stocks — Wed, 18 Feb 2026 15:07:33 GMT

Intro: Part 1 of video games Made in Japan will provide some KPIs for 5 companies in the video game industry, my perspective on the console wars, an analysis on Capcom and a review of Nintendo recent earnings. Subsequent post will cover a bit more Nintendo, plus Sony, Bandai Namco and Square Enix. The Japan video game industry is a fertile ground and have solid compounders currently trading at historical lows so it is a good spot to do some hunting right now.

Legal Disclaimer: All content published on Wintergems is intended for informational and entertainment purposes only. It is not intended to serve as a recommendation to buy or sell any security. The views expressed are my own and are subject to change without notice. The information provied here is proprietary. I make no representations or warranties as to the accuracy or completeness of the information provided and will not be liable for any losses, injuries, or damages from the display or use of this information. Readers are sol…

The Danger Zone

@Govro12 WinterGems Stocks — Thu, 01 Jan 2026 17:09:16 GMT

A Lollapalooza post covering 15 stocks! Yearly I review the danger zone, stocks that trades at EV/EBIT at over Thirty - ejecting some! to make sure that they do not become 2026 loosers.

Laurent Perrier - Trading at below book value!

@Govro12 WinterGems Stocks — Fri, 28 Nov 2025 13:39:41 GMT

The article constitutes my personal views and is for entertainment purposes only. The main goal of this article is to log my personal views. Nothing in this article or these posts in this blog should constitute an investment advice. The projections and estimates provided here should be considered as purely speculative. Do your own model and projections. Please refer to the disclaimer at the end of this article for more details.

As mentioned in my champagne supernova post, I have build up recently a good position around 91-92 euros on Laurent Perrier as Champagne is the only brightspot in the spirits LALA LAND. The family Nonancourt owns 65% of the company. A widow, Marie-Louise de Nonancourt bought the estate at the start of the WWII. First Eagle, another long term investor has 10% of the stocks. We are in good company. They won’t do anything stupid to impress the shareholders.

Today, November 29th, Laurent Perrier has published first half results (April to September) and as expected, …

Portfolio Shuffle 2025

@Govro12 WinterGems Stocks — Mon, 03 Nov 2025 16:04:44 GMT

This post is long overdue. I am capturing what I bought, I sold and trade in and out in 2025 to keep a record of my move. I would like to review these moves in 3, 5 or 10 years. You can tag along.

Full Exits or Large sales

At the beginning of the year, I sold long time 2009 holding Intuitive surgical as it was trading at more than 100x earnings. Did the same with 2018 Trade desk which was also trading at the same level. To my regret, I fully exited Tonnellerie Francois Freres at a loss after going through the January report and the way they buildup the inventory …

Portfolio October 31st

@Govro12 WinterGems Stocks — Mon, 03 Nov 2025 12:54:34 GMT

Cuervo - the #1 Tequila company at discount

@Govro12 WinterGems Stocks — Wed, 29 Oct 2025 01:58:57 GMT

This stock has about only 500m USD of float (14% of total capitalization) and is trading mainly on the Mexican stock exchange, as such I decided to post this only on wintergems.com without sending an email abroad nor link it to social platform. Only avid readers monitoring wintergems.com will caught this post.

Disclosure: I started to accumulate into Cuervo a few weeks ago buying at 19.5 pesos. This was the lowest lows (besides April 2025 Liberation day) since Cuervo started to trade in circa 2017. Since the 3Q release last week, the stock has jumped a bit and I…

Spirits Landslide and Champagne Supernova:

@Govro12 WinterGems Stocks — Sat, 18 Oct 2025 23:32:11 GMT

In Part II, will cover

Champagne Supernova!
My personal notes on Q1 results for Pernod Ricard
Competitive Landscape: top brands sales from Diageo which are not disclosed by the company
Other Rumblings on Spirits

Champagne Supernova

How many special people change?
How many lives are livin’ strange?
Where were you while we were gettin’ high?
Slowly walkin’ down the hall
Faster than a cannonball
Where were you while we were gettin’ high?

Someday you will find me
Caught beneath the landslide
In a champagne supernova in the sky
Someday you will find me
Caught beneath the landslide
In a champagne supernova
A champagne supernova in the sky

The Spirit business seems like a landslide. Supernova is a little bit too strong but Champagne is rebounding from weak 2024 numbers. LVMH has stated this week that Champagne and Wines (Rosé) have improve significantly in Q3 - up 7% organically. For 9months, it is organically up 3%.

In the call, LVMH is stating that Champagne is seeing a real improvement in USA. This constrasts drastically from the rest of the Spirit industry in USA. I cannot explain this dichotomy except that Moet Chandon and Veuve Cliquot, Dom Perignon are real luxury product and the bullmarket, AI frenzy and the millionaires are not impacted by the middle class loss of discretionary spending in U.S.

Initially I thought this might be related to some market share gains from LVMH or something specific to USA. But Pernod Ricard also has reported that Perrier-Jouet Champagne was one of the bright spot in Europe sales. Champagne is a luxury and is a lot more resilient that I thought.

Maybe time to get a few shares of Laurent Perrier before they announce their 6 month sales - April to September 2025. They should report some upward trends, unless its only the super luxury brands that are getting the bump. Will see.

This Champagne Supernova seems to have put some life on our holdings $RI and LVMH - will take any 5-10% jump anytime - but again this rerating will unfold on a 3-5 years timeframe:

Cognac Landslide

In contrast, the cognac spirits segment - Hennessy represents the vast majority of LVMH Cognac Spirits segment - saw a decline of 12% organically for the first 9 months and 6% in the latest quarter. Cognac is faced with a sharper decline than the Spirits market overall.

The figure below shows the quarterly sales of these 2 segments for the last 11 quarters.

Looking at the last 11 quarters, we see that cognac has gone through a landslide:

Q3 historically is better than Q2 historically (see 2023) so I am not sure that we have hit the bottom yet on cognac. For Champagne, we see that the last 2 quarters have seen an increase in sales.

Personal notes on Q1 Pernod Ricard

I will go through market by market starting from the largest.

U.S. (19%)

In 2024-25, U.S. represented 19% of sales. In Q1, organic sales was down an depressing 16%. If you consider sales in sales out, we are at 6%. So 10% of the drop is due to inventory adjustment. I suspect that U.S. distributors over ordered in Q4 to avoid the tariff. Europe and UK are subject to a 15% and 10% tariff to U.S. respectively since July 2025.

Jameson, Absolut and Kahlua are the top 3 brands for Pernod Ricard in the U.S. and performed well. Although I suspect strong headwind from inventory adjustment. Note that Kahlua is not longer considered a strategic international brand bucket since mid 2010s. It is part of the strategic local brands. They are pushing Martell into U.S. and Glenlivet is the #1 single malt brand in U.S. so these brands should go well. I suspect weakness for blended scotch brands (Ballantine, Chivas). RTD portfolio is strong.

Big marketing push on the following 4 brands Kahlua, Jameson, Glenlivet and Redbreast. Redbreast is the #5 Irish whiskeys. U.S. consumes almost half the Irish whiskeys, 10x more than in Ireland. Irish whiskeys is the highest growing spirits with Tequila in U.S. in the past 10 years.

India (13% of Sales)

India organic sales is up 3%. Price of alcool increased 35% in the state of Maharashtra due to a 50% increase in excise tax. Mumbai has 20m people.

Again Royal Stag, the #2 indian whiskey, and Jameson were growing.

China (was 9% of sales - likely 7% now)

Okay 27% decline is crazy. Management is explaining that Mid-Autumn festival was moved from mid September to October, but a few weeks shifting should not explain such a decline. I think this cognac market is going dead. The good news is that China is probably less than 7% now.

Remy Martin has not reporting yet their Q1 numbers, but considering the sharp decline in China and that Asia represents 50% of sales of cognac for $RCO I personally decided to sell my small line in Remy until October 28th results.

Other Markets

Europe is -4%.

Canada is strong, especially the RTD they bought recently, Jameson and Absolut.

So on a brand basis, it reinforces my belief that both Jameson and Absolut are growing organically across multiple markets (Canada, India, Europe, Turkey, South Africa, probably holding market share in U.S.).

Martel is suffering even more than what I thought in China. They might be loosing market share there versus Remy and Hennessy. This is something to worry and to be monitored.

Pernod Ricard is still guiding for a pickup in second half - January to June 2026.

On the strategic local brands -4%, things are looking better with strength with Olmeca, Kahlúa and Royal Stag in growth.

RTD is up 10% so this might become an important growth driver.

On the limitation of linear interpolation

In my previous post (see below), I used 16 years of data to detect if linear interpolation could be appropriate to project into the future. I understand that brands can be somewhat fashionable and spirits in general are subject to economical cycle. For more linear projection done in previous post click to the link below.

In my previous post, I took the top 5 brands in terms of growth contributor and for these brands at least, I thought that it was appropriate to use linear interpolation.

Here are 2 examples:

For Glenlivet, except some acceleration years (2013, 2022) and deceleration years (2016, 2024) the linear trend over 16 years is intact.

For Jameson, besides the economical cycle impact of 2020 (COVID shock) and 2022 (post COVID euphoria), the linear trend is highly predictable.

Now, linear interpolation works until won’t… But the probability of a breakout of a trend is small if a stable trend has been detected for the past 16 years.

The goal of this projection is not be exact about a particular year, but to project out volumes in 5 years, which is my investment time horizon. The result of my analysis is that volumes are pretty predictable in general and follows historical trends for those top 5 brands at least.

However it cannot be said the same for all brands.

If you take Martell for example, using linear interpolation and 16 years of data, clearly we see a problem:

We have a 9 years uptrend (with up and down) followed by a down trend that has been lasting 3 to 4 years. What will happen it 5 years, I have no clue. Will cognac sales continue to decline for another 5 years, will it stabilize or will it go up and resume the 2009 to 2025 red line - I doubt. So definetely, my confidence level of predicting what volume we will see in 2030 is very small. Probably a range between 1.3m and 2.2m.

Rumblings about Diageo

Diageo doesn’t disclose the volume nor sales of their top brands in contrast to Pernod Ricard. However I did look for estimates through independent market research source. Here are some numbers:

The following are the 2023 volumes ranked for the top 13 brands:

If you exclude Guinness which is a beer, Smirnoff, Johnnie walker and Captain Morgan represents two thirds of the top 13 brands. So I decided to focus on these 3 brands to understand the historical trends.

If you take the largest brand in terms of volume, Smirnoff, the 2015 volume was actually slightly higher than the most recent numbers (2024). It is unlikely that this brand will grow significantly over times. In comparison, Absolut has half the volume but is a more premium vodka brand, often priced almost twice the price of Smirnoff. Absolut’s has risen by 2 million cases since 2010. A bit cyclical but with long term growth.

#1 in Scotch

Johnnie Walker was flat until 2019, then dropped and rise up in 2022 sharply to decline in 2023 and 2024. 2024 is still up versus 2019, so I would think that it will rise up slowly. In contrast to Smirnoff, Johnnie Walker is one of the best blended scotch. The black label is a great balance of dark fruits, vanilla, and smoke and is very high end. Johnnie Walker is worth a lot more than Smirnoff in terms of overall sales. If you look at the top 13 brands, there are 2 major scotch brand: Johnnie Walker, Buchanan for about 25m cases. This represents 22% of sales for Diageo.

In comparison, Pernod Ricard has 15.5m cases spread over 4 brands.

Ballantine 9.1m
Chivas Regal 4.8m
Glenlivet 1.4m
Royal Salut 0.2m

Captain Morgan is slightly up versus 2015, but down versus 2019. So I would suspect flat numbers ahead.

In summary, Johnnie Walker is a strong brand with good prospect of rising slowly over the next 5 years, Captain Morgan and Smirnoff are mainstream brands with less prospect for growth.

The following is the only information that Diageo disclose in terms of brands.

Scotch represents over 22% of sales. Tequila comes next to 13%, then vodka 8%. If you look at the recent year, we have organic growth in tequila and Canadian whisky, and Indian Whisky. This confirms the data from the independent market research where we see decline in Johnnie Walker & Scotch overall, Smirnoff &Vodka, and Captain Morgan & Rum.

Diageo - one the sideline for now.

In summary, I am still on the sideline for Diageo. I want to see the next shoe that will drop when they report Q1 sales on Nov7th. USA numbers will be ugly in my opinion. There is still some inventory adjustment expected in this summer as some shipment was pull forward to avoid tariff from Europe and UK. This was reported by Pernod Ricard this week.

Deportation

Furthermore, about 2 million immigrants were deported (400k forced) in 2025 in U.S., the majority of Spanish culture, creating a real economic impact on goods consumed especially by Spanish culture (ex. Corona, Modelo, Tequila). Some weakness on tequila should be expected. Cuervo, the leading Tequila company in the August release, reported some weak numbers in USA with some inventory adjustment again, in contrast Mexico numbers were up. Constellation brands also reported some very weak numbers on the Modelo and Corona sales.

The tariff imposed by the Trump administration is creating a supply shock in U.S. that will only be aggravated with time, as suppliers passes more and more the tariff cost to the consumers.

For Diageo, U.S. represents a much larger component (40%) of sales than Pernod Ricard (40% versus 19%).

Cuervo is reporting Q3 numbers this week, so this will be interesting to get an updated view of the immigration deportation impact on the Tequila market. This might influence my decision to initiate a position with Diageo before or after the Nov7 update.

I hope this update was helpful to clarify some aspects to concentrate on Pernod Ricard (and LVMH) and avoid Remy Martin and Diageo for now.

Cheers! let me know what you think!

Leave a comment

Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical” and that “past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

Dollarama - 1 year later

@Govro12 WinterGems Stocks — Wed, 11 Jun 2025 19:50:29 GMT

Before you continue glancing into the latest post, I would strongly encourage you to first review my analysis publish last year in June on this amazing dollar store company based in Canada :

In a nutshell, Dollarama operates very efficient dollar stores across Canada with a dominant market share of around 65% to 75% (based on my own analysis) of the dollar stores segment.

Today (June 11th. 2025), Dollarama released some very strong results as shown below for the last quarter:

EPS is up 28% on sales up by 8.2%.

The stock reacted quite favourably on these strong results and the stock is up 53% since I last published on the company a year ago. I hope some of you joined the rank of shareholders at that time.

Comps sales is at a healthy and sustainable 4.9%. GM is within long term range at 44.2% (as shown below),

and operating margin has kept improving over the recent years now at 25.6% (historical. chart below) which is almost 3% higher than last year.

As I disclosure, Dollarama is part of my 2009 cohort- found this stock “a la” Peter Lynch, realizing that new Dollarama stores were popping up left and right in my area, replacing mom and pop dollar stores and started to investigate.

Now in recent years, there are 2 development that gets me excited for future growth: Dollarcity and international expansion via acquisition.

Dollarcity

Dollarcity had a total of 644 stores, with 377 locations in Colombia, 109 in Guatemala, 77 in El Salvador and 81 in Peru. This compares to 632 stores as at December 31, 2024. Dollarcity stores are very similar to Dollarama stores in Canada and there is strong synergies in terms of type of goods sold and operational systems. In June last year, Dollarama has increased its stake in Dollarcity to 60.1% (by about 10%) and has the option to further increase its stake to 70%. As of March 31, 2025, sales were up by 12.6% YoY.

The Corporation’s 60.1% share of Dollarcity’s net earnings for the period from January 1, 2025 to March 31, 2025 amounted to $40.3 million, compared to $22.1 million for the Corporation’s 50.1% share during the same period last year. This represents a 82.4% increase. As such, the net income of Dollarcity represents already a bit more than 10% of the overall operating income of the Company.

Some colours on how Dollarcity is performing: ie. operating margin gain, SSS positive, still quite new in Columbia and Peru. So Guatemala and El Salvador are the orignal countries.

Mexico expansion of Dollarcity

Dollarama and the Dollarcity founding stockholders have also agreed on governance terms providing for the future expansion of the business to a new country, Mexico. Dollarama and the Dollarcity founding stockholders will indirectly have an 80.05% and 19.95% equity interest, respectively, in the Mexico portion of the business. Based on comments yesterday from the CEO, Neil Rossy, a first pilot store in Mexico will open this Summer.

The merchandise should be very similar than the one you can find in other Latin America countries:

Australia expansion

Dollarama in March 2025, has reached a definitive agreement to buy the Reject Shop. Headquartered in Melbourne, The Reject Shop is Australia's largest discount retailer with a store network of more than 390 locations across the country. Its offering includes private-label and national brand products. The Reject Shop generated consolidated sales of A$866 million (C$779 million¹) for the last twelve-month period ended December 29, 2024, and employs over 5,000 people.

Once the acquisition is consumed, this will represent an increase of almost C$800m in sales, adding close to 12.5% of sales. It will allow Dollarama to apply its operational knowhow to the Australian market. There are a lot of synergies between Dollarama and The Reject Shop in terms of merchandising. The Australian company should also benefit from the buying power of Dollarama since Dollarama has 8x more volume. It will be quite interesting to analyse the operating margin evolution of the Australian operation over the years.

The acquisition need to be accepted by shareholders this month. I will keep you posted.

Free cash Flow machine

Another aspect I like is that although Dollarama is expanding in Canada at a rapid pace, it is able to generate a very healthy free cash flow, matching almost the net income. This allows the company to make buyback when the stock is undervalued. I mentioned in more detail that aspect in my previous post.

To summarize, Dollarama is a beast in the retailer space, compounding at an impressive level with no down year since it became public in 2009 as shown below. It is not well known, but I am surprised that it has not yet achieved a cult status in the stock market. If you include today’s result, which is not shown in TIKR yet, the 12 mo EPS is now 4.39$.

The valuation is quite high at 43x trailing earnings, but put it in your watchlist, and next time Mr Mussolini south of the border derails the stock market, you may get a chance to get a few shares. Dollarama is totally immune to the tariff shitshow in my opinion.

Leave a comment - doubts and questions are welcome

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

Google by numbers

@Govro12 WinterGems Stocks — Fri, 25 Apr 2025 23:36:00 GMT

Hope you find my personal notes useful - read the disclosure below. Do your own research.

Users

AI Overviews is shown to 1.5 billion unique users per month. AI overview was deployed for mobile in late 2024 in USA.

Q1 marked our largest expansion to date for AI Overviews, both in terms of launching to new users and providing responses for more questions. The feature is now available in more than 15 languages across 140 countries. For AI Overviews, overall, we continue to see monetization at approximately the same rate, which gives us a strong base in which we can innovate even more.

Google One: 145 million subscribers. AI Gemini Advanced and storage.

YouTube Music and Premium over 125 million subscribers

2 billion people use Search every day

5 trillion searches on Google annually

YouTube now has over 1 billion monthly active podcast users which has overtaken Spotify and Apple in terms of active podcast users.

Financials

Revenues up 12%, Expenses 8%, Operating income 20%.

12mo Free cash flow steady at 75B

Quarterly CAPEX up 43% YoY to 17.5B

We still expect to invest approximately $75 billion in CapEx this year.

Google Cloud:

Google cloud is capacity constrained and thus Cloud revenue may fluctuate based on the actual delivery of new capacity over the year.

Ironwood, 7th generation TPU: 10x improvement in compute power and nearly twice as power efficient

Vertex AI platform: Gemini 2.5 Pro, 2.5 Flash, Imagen 3, Veo 2, Chirp and Lyria, plus Llama 4 and Anthropic.

Product

2.5 Pro is #1 on the chatbot arena by a significant margin. 2.5 Pro offers reasoning, coding, science and math capabilities. Active users in AI studio and Gemini API have grown over 200% since the beginning of the year.

AlphaFold has now been used by over 2.5 million researchers.

15 of our products with 0.5 billion users now use Gemini models

Circle to Search (multimodal queries) is available on more than 250 million devices (android) with usage increasing nearly 40% this quarter

Google's network: 2 million miles of fiber and 33 subsea cables

Google workspace: 2 billion AI assists monthly, including summarizing Gmail and refining Docs

YouTube has been #1 in streaming watch time in the U.S. for the last 2 years.

20 billion videos on YouTube

Waymo is now safely serving over 0.25 million paid passenger trips each week. That's up 5x from a year ago.

Valuation

(based on 12mo trailing)

Operating income: 119B

Free cash Flow: 74.8B

EV: 1 880B

EV/EBIT: 15.8x

Historical Average EV/EBIT: 20.8x

Free cash Flow Yield: 4%

Cheers!

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

A timely post! Bombardier - Leading Private Jet Vendor in a Duopoly caught in a Tariff Storm

@Govro12 WinterGems Stocks — Tue, 04 Mar 2025 11:32:09 GMT

Warning: 25% Tariff Update

I decided to hold in publishing this post until today - Tuesday morning- to see if Trump would proceed or not on the broad 25% tariff to Canada and Mexico imports. It seems that Trump is going ahead on this at the time of publishing. Before the close yesterday, Bombardier shares crashed at 78 CAD or 54 USD. It reached a similar level early February before the tariff was postpone. The post was written assuming a price of 83 CAD in terms of PE ratio etc..

Canada and USA manufacturing in aerospace and automobile are highly intertwined and I suspect that most USA companies operating in the aerospace industry (GE Aviation, Textron, Boeing, Alcoa*, Gulfstream, Lockheed Martin, Pratt & Whitney) will request that the aerospace industry be exempted from the broad tariff.

The aerospace industry is highly regulated and capacity constraint and as such parts manufacturing cannot be replaced.

* Alcoa makes the latest and greatest in terms of AL-Li alloy used in Boeing 787, Airbus 350, Global 7500, Gulfstream 650). Alcoa has three aluminum smelters in Canada, located in Baie-Comeau, Bécancour, and Deschambault.

Canada and in particular the Province of Quebec makes critical aerospace parts which are sold to USA.

Most of the Aluminium (AL) consumed in USA are made in one of the 8 mega smelter plants in Quebec and one smelter in BC. AL smelter requires a lot of energy. All aircrafts are made of AL alloy. USA relies totally on the AL produced in Quebec. In 2024 alone, U.S. primary aluminum imports from Canada totaled nearly 2.7 million metric tons. This represents over half of the U.S.'s aluminum consumption. USA does not have the energy available to produce AL and smelter would take years to be build and get the proper authorization and there is no energy availability. A smelter cannot rely on solar plant! If a smelter stop due to energy blackout, it looses weeks of production.
GE aviation relies on GE Bromont to produce critical parts of the most popular engine in the world the CF56. The CF56 is used in the narrow body Airbus 320 and Boeing 737, the two most popular plane in the world. The CF56 is already supply constrained.
Pratt & Whitney Quebec produced engine for Textron and Gulfstream. The whole line of G400, G500 and G600 uses engine from P&W. The G650 uses engines from Roll Royce.
A majority of Helicopters are assembled in Quebec for Textron. Both the Cesna and Helicopter business of Textron will be totally disrupted.
Quebec aerospace industry makes a lot of other critical parts like landing gear and so on.
Lockheed Martin sells the F35 to Canada.

Here is what the conference board of Canada has to say about the 25% tariff:

I strongly believe that once cars and planes price increases by 10-20% - rough guess - Trump will pullback after a few months from this broad tariff. This is my investment thesis.

Finally, 66% of Bombardier customers are wealthy individuals or private companies. I do not see any reason for these customers not to take delivery of their private jet in Bermudes or some other tax haven location or even in Canada to avoid the tariff. This previous statement is speculative from my part and will need to be clarified over the next few months if this is the case.

Overview (original post starting here)

The medium and large size private jet market is dominated by Bombardier and Gulfstream (Gulfstream is #1 in sales, Bombardier is #1 in delivery). Falcon maker Dassault is far behind as #3 with only 26 deliveries in 2023 (Bombardier delivered 5.3 times more planes in 2023 with 138 deliveries). So Bombardier and Gulftream are operating in an almost private jet duopoly with Dassault, Textron (Cesna maker) and Embraer far away as #3, #4 and #5 respectively.

Bombardier has a very broad offering in both the large cabin and medium cabin private jet segment with the Global aircraft and the Challenger aircraft. If you include the light cabin Learjet which was discontinued, there are more than 5000 Bombardier private jets in operation today.

Having sold their train business to Alstom in 2021 and the CSERIES to Airbus in 2020, Bombardier was finally able to focus all its creativity and innovation to its most valuable market, the private jet market. Since 2020, the private jet segment has improved significantly and Bombardier was able to significantly improve its financial situation which was in dire condition in 2020.

I took a significant position in this Canadian stock recently, as the stock price has come down due to fear of the Trump tariff on Canadian export. Bombardier is currently trading at a very attractive ratio. It made 5.16 USD of adjusted EPS or 11x earnings. Bombardier currently trades at 83$ CAD, or 57USD. Through a combination of continuous increase of delivery of private jet planes, increase in aftermarket sales, significant repayment of long term debt, increase in sales to defense market, I believe Bombardier can double its EPS over the next 5 years and with a PE upward rerating, which should be able to achieve a very good return over the next 5 years (PE expansion and EPS growth). I will go over these 4 aspects in the next sections:

Historical increase of delivery vs competition
Debt level
Aftermarket sales
Defense spending

Some history mostly on private jet development

I am going by memory here, so some dates might be off and so on but this is a company that I have tracked and owned (on and off) since 1992.

Bombardier was founded by Armand Bombardier in 1930s, who patented the first snowmobile. Bombardier has a very long history of inventions and innovations. The company invented the small size snowmobile in the 1950s (initial snowmobile in the 1930s was a 2-8 passengers car on ski) and also invented the noisy but fun jet ski in the 1980s. They started their foray in the airplane business by buying Learjet and De Haviland in early 1990s. They also got access to the Challenger aircraft program this way.

They invented the Regional Jets in the 1990s, which really transformed the commercial airplane industry. In the 1990s, in parallel to the RJ jet development, they developed from scratch the Global Express which was launched in 1999. The Global Express was the longest range private jet at the time. It was a very ambitious program internally developed on the heel of the Challenger program. It was Bombardier first foray in the large cabin private jet market. The Global Express is the original design of the currently sold Global 5500 and Global 6500. The even longer range Global 5500/6500 are powered by new Rolls-Royce Pearl engines with lower fuel burn and were unveiled in May 2018. Rolls-Royce is another turnaround story that I hold share in. I provided a quick overview on Rolls-Royce here: 7 european

They also developed from a clean sheet of paper the Global 7500. The development started in 2010. The Bombardier Global 7500 and Global 8000 are ultra long-range business jets and remain the largest business jets in the world. The Global 7500, originally named the Global 7000, made its first flight on November 4, 2016 and entered service on 20 December 2018. The Bombardier Global 7500 uses the latest and greatest in terms of alloy with the new Aluminium-Lithium alloy which provides 10% weight reduction compared to composites, leading to up to 20% better fuel efficiency, at a lower cost than titanium or composites. Al–Li alloys is used on aircraft such as the Airbus A380 and A350, Boeing 787 and the C Series. It also is used on the Gulfstream G650.

So within 2 years (circa 2019) they completely revamped its private jet offering with the Global 5500, the Global 6500 and the ultra long range Global 7500. So no wonder that margin was at its lowest in the year of 2020 as we will see in the next section.

One final thing, Bombardier was split into 2 companies around 2001, Bombardier Recreational Product (Snowmobile, jetski), and Bombardier (Aircraft and Trains) $BBD.b . Both are still traded in the Toronto stock exchange but there is no cross-ownership.

Historical increase of delivery

Since 2020, the number of delivery per year has increased steadily going from 114 delivery in 2020 to 146 delivery in 2024. If you look on a segment level, the number of medium cabin private jet has increased steadily going from 44 Challenger deliveries to 73 deliveries in the latest year. The number of Global jets delivered has also increased slowly but steadily from 59 aircraft to 73 aircrafts. Note that Bombardier discontinued the delivery of Learjet aircraft in the light cabin segment.

Bombardier midterm plan was to get to 150 jets delivery by 2025, so we are close to this objective.

If we look at the delivery numbers of Dassault Falcon and Gulfstream, we do not see the same level of steady increase. Dassault is more or less delivering the same amount of private jets year after year at low 30s (except 2023 which saw a drop to 26 deliveries.

Gulfstream has been stable at around 127 deliveries in 2020, and 132 deliveries in 2024.

If you compare the deliveries of Gulfstream versus Bombardier, you can observe that clearly Bombardier is gaining market share since 2020 versus Gulfstream. Bombardier overtook Gulfstream in terms of delivery in 2022.

If you look at the different industry segment historical sales, we understand why Bombarder exited from the light segment. The light segment is been flat and represents less than 15% of the total market. In contrast the large and medium segments is expected to grow significantly in 2024 and the following year.

Bombardier large cabin delivery went from 59 to 73 in 4 years, or an increase of more than 5.4% per year. Medium cabin delivery went from 44 to 73, or 13.5%.

The positive trend in delivery should continue over the next 5 years. Will delivery increase by 5% per year or 10% per year, this is hard to say, but we should expect this to continue in my opinion in this range.

A Reduction in interest expenses

Since 2021, Bombardier was able to concentrate on its core business (private jet) and sell its loosing money or breakeven business (Trains, Light cabin jets and CSERIES). As such since then, Bombardier was able to reduce its net debt by 1100M in US Dollar. I selected the end of 2021, as the benefits of selling the other business with its debt was captured in 2020 and 2021. In other words, from the end of 2021, all the debts repayment is related to operational cash flow. We can assume a similar repayment trend for the next 5 years.

The other benefits of paying down the debt is that the bonds issued by the company are now at lower interest rates. I provided for each year the average interest rate of long term debt. The major credit firms have rerated positively Bombardier credit rating in 2024. Moodys Bombardier's credit rating from B2 to B1 on May 2, 2024 and S&P credit rating from B to B+ on June 4, 2024. Average interest rate went from almost 9% to 7% in 3 years. The trend should continue.

This resulted in the interest cost from LT debt to reduce steadily since 2021 as shown below (from 633M to 389M). I am expecting that interest cost may be around 200M in 4 years if we follow the current trend. 200m translates to a 2$ USD per share of EPS. Analysts are estimating an even more accelerated pace of repayment of the debt. But I prefer to believe in recent trend than management guidance to analysts.

Still we should get a 40% increase in EPS from this level by assuming a conservative repayment of debt and small reduction in interest rate as currently trending.

Please note that operating income translates directly into net income since Bombardier has more than 12B in tax deductible from previous loss.

Trend on Revenue

In 2020, the business jet revenue was 5600M (discontinued business in 2020 was removed from this number) and it increased to 8665M in less than 4 years or 11.1% per year. This is a combination of a higher level of delivery (as shown in previous section) plus an higher increase in aftermarket services. Services revenue was 1200m in 2021 or 20% of total revenue and it increased to 2036m in 2024 or 23% of total revenue. So services increased at a faster rate than aircraft sales. Management has been investing in service centers all over the world in recent years, enabling Bombardier to increase its share of the aftermarket and maintenance market.

Based on the information provided by management, if Bombardier maintains its current market share of the aftermarket (50%), the services component should increase by 800M in 2030. If it increase market share to 70%, then the aftermarket sales would increase by 1900M. Market share went from 36% (in 2020) to 50% (in 2024) in less than 4 years. So we should expect some increase in market share. An increase of 3% per year should be achievable based on historical trend. This should get us to 65% market share by 2029 or 3600M in revenue or an increase of 1600M from 2024 level.

Assuming that the Bombardier increase aircraft sales based on industry trend of 3%, aircraft sales should be 16% higher than 2024 level. Aircraft sales was 6650M in 2024. A 16% increase would represent an increase of 1060M. Bombardier has increase market share over the last 4 years, so this is a conservative estimate.

This result in projecting sales in 2029 at 11330M.

Another way to look at this is to simply interpolate current historical sales.

Looking at the current trend, Bombardier sales would reach around 10 Billion USD by 2027 and 11 Billion USD by 2029. So both approaches leads us to a 11300M revenue in 2029.

Operating Margin Trend

I believe operating income less LT debt interest is the best way to track Bombardier profitability since net income is often impacted by currency hedges, price fluctuation between the Canadian dollar and US dollar and LT debt repayment before expiration.

The following is the historical operating income margin over the last 4 years.

As we can see, the operating income is improving rapidly. This is due to 2 factors: Bombardier launch 3 new aircraft (Global 7500, Challenger 3500, Challenger 650) around 2018-2020. As the program is maturing and more planes are produced, margin improves significantly. 2022 investor day presentation illustrate the cost improvement of the Global 7500 as more plane are produced. There is a 40% reduction from Aircraft #1 to Aircraft #50 and another cost improvement of 20% after the next 50 aircraft. Bombardier has shipped 200 Global 7500 in December 2024. So we should expect a further decrease in cost per plane.

Management has targeted an EBITDA margin of 18% for 2025. In 2024, Bombardier has achieved an EBITDA of 15.7%. This should translate to a corresponding EBIT margin of around 12%. Let’s assume a EBIT margin of 2029 for 2029 as well to stay conservative.

2029 Net income Projection

Hera are the baseline assumption for 2029:

Revenue of 11300M
EBIT margin of 12%
Reduction of 200M in LT Debt payment
This result in operating income of 1350M - less 200M in interest income should get us to a net income of 1150M. EPS would be 11.50 USD in 2029 or 2.2 times current adjusted EPS. If Bombardier rerates to 15x earnings, this could be a 4 bagger in 5 years and trade at 240 CAD.

Risks and factors

North America sales (including Canada) represents 55% of aircraft sales for Bombardier. I suspect Canada represents 10% of sales. So 45% of sales targets USA customers. Some of the sales originally targeted to USA customers could be moved to offshore or Canada but this need to be verified. But still a prolonged tariff war will seriously impact sales in USA.

A prolonged tariff war will impact Canadian currency which should help reduce the cost of aircraft labor done in Canada in relative US dollar.

23% of sales are aftermarket so this part will be protected.

Some critical parts for Bombardier aircraft are made in USA. The GE engine in the Global 7500 for example. Canada has not yet imposed broad tariff to USA import. Canada is smart about imposing tariff. It only imposed tariff on parts that Canada also produce or can get elsewhere. Mainly food, wine, alcohol, electrical appliance. Here is the complete list: https://www.canada.ca/en/department-finance/news/2025/02/list-of-products-from-the-united-states-subject-to-25-per-cent-tariffs-effective-february-4-2025.html

As such, Canada will not impose tariff from Bombardier critical parts made in USA. My thesis is that USA will do the same eventually.

I am doing this analysis mainly for me and some friends that also are interested by this stock. Still the main goal is to get comments and different views to strengthen my investment thesis. If you agree or disagree with the thesis please provide your comments. If you enjoy the post let it me know by putting a comment. My dream would be that a strong discussion thread on this company will get started here. Not in X!

As a final note, I feel that the combo Bombardier - Pernod Ricard is the perfect risk combo! You can drink your way out of this world insanity and cheering for that chaotic president to go away for the next 4 years while enjoying a 5% dividend and some amazing Scotch and cognac.

Have a nice day !

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

The Dismantling of Amazon Canada and selling Amazon

@Govro12 WinterGems Stocks — Sat, 01 Mar 2025 17:20:02 GMT

All 7 Amazon warehouses were close down in Montreal and Amazon Prime customers (the few remaining one) are getting 1 week delivery. Amazon Canada has decided to close all warehouses in the East Canada, serving 8 million people. As seen below Prime customers have to wait 1 week to get their goods in Montreal. Amazon is now totally uncompetitive as I can get my goods from Costco or Walmart within 2 days - COSTCO warehouse employees are unionized and they can still deliver. This is also a massive boycott of Amazon across the country for this reason.

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When Amazon decided to shut down operation in my region my gut reaction was to not renew my Amazon Prime membership ending this month - I was a customer since 1997 and a Prime since 2003. As a shareholder, it got also me thinking how Amazon is fragile to any threat of syndicalization - the decision to shut down Amazon operation in Quebec was not officially claimed by the company to the fact that one warehouse decided to unionized of course! - but we all know what is the real cause. As a shareholder, it got me thinking however of the fragility of Amazon business model in retail. I think warehouse employees work conditions are so rough that the threat of having a union is forcing the management to make some very drastic decision. More importantly for sure Amazon has lost its customer centric culture. Amazon under Andy Jassy is a number crunching company.

The other threat for Amazon is the commodization of the hyperscalers in AI. For AI, in contrast to the classic computing and storage service, the value has moved from the hyperscaler to the solution/chip provider (i.e TSM/NVIDIA). So Amazon is competing head to head with Microsoft, Google, Oracle or even NVIDIA cloud. Large AI vendors such as Open AI are building their own cloud infrastructure (Stargate).

Anyway, Amazon seems weak, it is trading at 40x trailing earnings, most of the margin expansion is in the past, revenue is growing at 10% clip and I am out. Amazon was a 5 bagger for a late 2016 investment and there are other opportunities elsewhere. Do not fall in love with a stock we are here to make money.

Time to move on for me and time to move one also for you Andy Jassy..

I will be 15-20% cash

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

HIFS REVISITED (Post Q4 earnings)

@Govro12 WinterGems Stocks — Sun, 19 Jan 2025 18:29:23 GMT

On January 17th 2025, HIFS has posted some very good numbers for Q4 pretty much inline with Wintergems model on projected Net Interest Margin.

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After this experiment, I still need to do some fine tuning to the model to get to even closer projection for the first quarter 2025, but my confidence level has increased for the next quarter.

The recent pullback seems to be a good entry point from a valuation perspective.

Created with TradingView

The management very well explained the improvement on the net interest margin in the Q4 earnings press release:

So NIM improved sequentially by 17 basis points to 1.24%. a 16% improvement. The management is also providing greater visibility of what to expect in the first quarter of 2025, by disclosing a NIM for December 2024 of 1.36%. The Federal Reserve made 2 cuts in the fourth quarter, one in October and one December, so in December the Company has benefited fully from the first one and but only partially from the second one. The last cut was done in December 18th, so we should expect a NIM north of 1.36 BP in the first quarter 2025.

Loans

The Company had an average loan book of 3 882 million in the fourth quarter and 3 873 million at the end of the quarter. Loans follows a small decline since the last few quarters. The Company is probably not chasing loans too aggressively and is renewing loans at a much higher yields. Jumbo loans is currently priced at 6.941%, much higher than current average loan yields of 4.58%.

Loans Yields

Q3 2024 (published): 4.56%

Q4 2024 (WG proj.*): 4.63%

Q4 2024 (published): 4.58%

*Based on WinterGems homemade model published one week before the earnings.

Improvement on yields of 2BP did not match the last 4 quarters improvements which were 10BP, 3PB, 13BP and 7BP for an average of 8BP per quarter. The new 5 quarters rolling average is 7BP. I dont see any fundamental reason to revise downward this trend on a going forward as newly originated loans are priced at a much higher yields than current average loan book.

The charts shows the historical loan yield rate and the new projected yield for the first Quarter 2025.

Interest Bearing Deposits

The Interest Bearing Deposits were 2 136 million in average in the fourth quarter and 2 094 million at the end of the quarter. It follows a slight upward trend in the last 2 quarters. The Company is focusing in attracting deposits more aggressively since the last few quarter in my opinion.

Interest Bearing Deposits Yields:

Q3 2024 (published): 4.09%

Q4 2024 (WG proj.*): 3.81%

Q4 2024 (published): 3.80%

Our projection was on target versus published numbers. The next quarter will be trickier. There is a 10BP reduction due to the money market deposit part. But the other portion of the deposit is more difficult to assess as being composed of a mix of short term certificates and plong term certificates which are not totally correlated with the Fed fund rate.

Net Interest Margin

Based on other considerations not disclosed here, we derived a projected Net Interest Income of 1.31%. We overshoot slightly the NIM as the loan yield did not increase as much as projected (2BP versus 7BP) and the borrowing yield was higher than projected.

Q3 2024 (published): 1.07%

Q4 2024 (WG proj.*): 1.31%

Q4 2024 (published): 1.24%

We are projecting a NIM of 1.44%, with a good level of confidence since the Company said that the NIM was already 1.36% in December alone. We do not expect the Federal Reserve to cut this quarter. Consensus is for a cut in the second quarter.

Net interest Income

In Q3, net interest income was 11.1 million and core operating income per share was 1.45$.

In Q4, net interest income was 13.3 million with a NIM of 1.24% and core operating income per share was 2.18$ per share.

As such, using our expected NIM of 1.44%, Net interest income would raise by 2.3m to 15.6 million which should result in core operating income of 2.95$ per share or 35% increase sequentially from previous quarter.

In summary, HIFS should continue to benefit from the strong momentum in sequential earnings growth. Book value is now 198$ per share so this also provide some downside protection.

I think the path to get back to a more acceptable* NIM of 2% is within reach - it is just a question of time, possibly 3 or 4 quarters. With 2%, this bank could earn close to 5$ per share in core earning per quarter or 25$ per year.

*Please note that HIFS was historically able to achieve 3%+ in terms of NIM However I do not believe they can get to 3% in the short term. HIFS since 2018 have cut in the number of branches (which is good in terms of operating expenses) and is really focus on commercial loan and more specifically multi-family loan (not retail anymore) and does not have a strong deposit franchise anymore in my opinion. Furthermore, they have an unbalanced loan / deposit ratio and as such they rely too much on more expansive FHLB and wholesale deposit. It was fine in 2016-2021 as rate was ultra low, but not anymore. As such it will take some time before HIFS is able to get back to 3%, especially if rates stays around 3-4% and don’t go back to 0%.

For more info on the Company, you read my 2 previous post:

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and

Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

HIFS REVISITED after 3 federal reserve cut

@Govro12 WinterGems Stocks — Sun, 12 Jan 2025 17:25:09 GMT

On Dec. 18, the Federal Reserve made its third consecutive cut of 2024, reducing the federal funds rate by 0.25 percentage points and 1 percentage points since September. Hingham Institution of Savings will be publishing Q4 results this coming Friday (Jan 17th 2025) or Monday (Jan 20th 2025) and I expect a first impactful improvement in NIM (Net Interest Margin) since the rapid raise of interest rates and inverting yield curve occurring in end of 2022.

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At the same time, when the Federal Reserve started to cut rates, the stock has skyrocketed, and almost increased by 50% from 200$ to 300$. Very recently it has come down to 233$ and I started to buy some at this level. I think I have good visibility on future earnings power over the next few years based my proprietary model of the NIM, so I feel confortable to re-initiate a position here.

I discuss in great length about the bank unique culture and so on when I publish a post on which was trading at the time at 184$ in the middle of the interest rate crisis. At 230$, it’s about 25% higher, but with greater visibility for the years ahead, so the expected return might actually be better. HIFS is currently lending at 6.9% and attracting deposit at 4.2% so there is a nice spread here. As the backlog of commercial loans get repriced, the trend over time should be to get back to a 2 to 2.5 percentage point NIM. With close to 4 B in loans this would get us close to 100m in interest income.

You can find my post published on May 2023:

Q4 Preview (speculative)

The following is my projection of the interest rate that HIFS will be able to get (Loans, securities) and pay (Deposits, Borrowing) in Q4. There are a lot of moving parts here, a great deal of loans, deposits and borrowing are following a long duration so it’s not repriced immediately when the Federal Reserve makes a cut. So take this as a grain of salt. I am actually posting this as an experiment so test the model 1 week before the company is publishing to test the model. View this as an experiment to refine the model and not the result. Still I have good confidence that NIM will improve.

Here are the numbers without much comments.

The December 2024** number is the projection of the model

This is the actual Federal Reserve fund rate

This is the average effective fund rate per quarter

The yield rate on Loans. Projected to be raising to 4.64%. The bank is still lending new loans at 6.9% on 5/5 ARM jumbo.

This one is tricky with a lot of moving parts but about 40% is money markets so this should be very responsive to the Fund rate as such we should see a good drop, which will continue in Q1 even if no additional cut as the effective fund rate over Q1 will be lower.

The borrowing part is also tricky as well since a portion (785m) of the borrowing is via ‭HLB-Option‬‭ Advances with long duration. This portion has already a much lower interest rate than the current fund rate so that part is not expected to change unless we get to much lower interest rate (e.g. 3.5%).

This result is a NIM getting to 1.27%, up 20% from previous quarter. So interest income would raise by about 20% sequentially. Will see if the model holds Friday. Q3 saw an improvement of 10%. Q2 the same. The trend is our friend.

Stay Tune!!

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One final thing… I closed my twitter account, as the recent comments of Elon Musk and Trump vis a vis my home country Canada, Greenland and Panama it totally unacceptable and it has a reminiscence of Germany in the 1930s. It started with a friendly country Austria 1938 and Poland in 1939.

Boycotting twitter is my contribution to a peaceful non aggressive world.

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

Dollarama - The Dominant Dollar Store in Canada

@Govro12 WinterGems Stocks — Wed, 05 Jun 2024 00:28:54 GMT

Originally published in January 2024

Dollarama is the dominant dollar store in Canada. It currently operates 1541 stores in Canada which is pretty well distributed across Canada. It is still in store expansion mode, having established 21, 18 and 16 stores in the latest 3 quarters (Q1, Q2, Q3 respectively) and having opened 65 stores in 2022.

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In contrast to US where you have multiple players in the dollar store segment, notably Dollar Tree and Dollar General, Dollarama rules this segment. Dollarama mentions that the top 4 competitors owns in aggregation 550 stores, so Dollarama has 3 times more stores than the next 4 competitors.

A brief history

Dollar Stores were founded by the Rossy family in the 90s. But I suspect this became the very efficient machine under Bain Capital guidance. By the time it became public in 2009 it was running on all cyclinders and expanding quickly across Canada. It had 550 stores at IPO. Bain Capital sold basically all shares in 2011 - big mistake for them. Today it has 1540 stores and a controlling stake in Dollarcity operating in Central America and Peru with over 550 stores.

Unique lucrative growth story

There is no equivalent in the Canadian market - of a fast growing retailer like Dollarama. All the growth is organic, just plain new stores and better merchandising and better operating margin along the way. In 12 years, Dollarama was able to decuple (10x) the EPS from 0.31 $ to 3.32 $

This rapid increase of the EPS came from

Revenue growth by almost 4x (3.6x to be exact)
A share reduction which increase EPS by 58%
Operating margin increasing by more than 60%

The 10x gains resulted partly by sales increasing by almost 4x (3.6x). This growth should continue fueled by same stores sales and store count.

Same store sales seems abnormally high in the 2023. A 5% to 7% range should be more probable over the next few years.

Store count: 550 stores in 2009, 850 in 2013, 1550 oct 2023. Increasing by 60-70 stores per year in recent years.

Operating margin increasing by more than 60% from 14.76 to 23.68%. That growth has stalled since 2018.

The company is buying back shares aggressively over the last few years. Also smartly - not buying as much shares when the price has run-up. Share count have produced an increase of 58% on the EPS since 2011.

Extract for annual report. The company is proud of purchasing shares regularly.

Along the way, the gross margin have been stable, so the customer gets the same value.

Market share gain

Dollarama has been gaining share over other retailers like Canadian Tire, Pharmacy, hardware stores, grocery, corner stores (like couche tard) in my opinion as the density of Dollarama has increased. If I take my personal situation, 10 years ago there was no Dollarama in my town (suburban town) and now one mom and pop dollar stores were converted to a Dollarama at 2.5km North West from my house 6-7 years ago and a new Dollarama was established in a new strip mall at 1.5km South East (next to a Jean Coutu - and a Super C for Metro shareholders!). This store has become almost a proximity store for me where I can find almost all household items you need at a cheap price. This is more a hardware store than a food store in contrast to some US dollar stores.

Info on Debt

Debt of 2.2B $ is reasonable considering the high cash flow entering every year.

E-commerce Threat

All retailer should be analysed from the secular trend of the fact that a larger share of sales will be done online. In the context of Dollarama, considering these are all low cost items, the economic is not there to have a small item being ship to your home considering the cost of delivery. Dollarama is also offering a online delivery, but I suspect there is not much success about it.

In general because of online threat, I do not invest in retails with the following expection:

Goods are low cost or need to be fresh (food) so delivery to home is cost prohibitive
Goods are exclusively private label (e.g. Lululemon, Uniclo, etc) so there is no competition from major e-commerce cos.

Historically High Price Market Evaluation

Dollarama has been trading at high PE ranging at around 30x since 2015, peaking often at around 35x. It is currently a little below 30x so fairly valued for a fantastic company. You could have bought at 20x PE in March 2020 and end of 2018.

I am seeing at least a 10% increase in sales over the next 5 years a combination of 5-7% same store sales and 4% new stores and 3%-4% share reduction per year. There is also Dollarcity - a central america dollar stores owned by Dollarama at 51%, which I havent discuss which gives some additional growth potential. As such, we are close to growing EPS at 15% per year ( a doubling in EPS in 5 years). This very predictable and non cyclical growth is worth north of 25x times based on my experience.

I am happy to hold this stock as my #6 position and would add on weakness around 25x PE.

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

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Risks and factors

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HIFS REVISITED (Post Q4 earnings)

Loans

Interest Bearing Deposits

Net Interest Margin

Net interest Income

HIFS REVISITED after 3 federal reserve cut

Q4 Preview (speculative)

Dollarama - The Dominant Dollar Store in Canada

Originally published in January 2024

A brief history

Unique lucrative growth story

Market share gain