CAE Inc (NYSE:CAE) reported slight beat compare to street expectations in fourth quarter results, however our estimates and guidance remain almost consistent. There is no change to our $17.50 target price. Our Target Price for CAE is derived from an equally weighted average of our DCF analysis (WACC 9.6%; growth rate of 2%) which yields $17.10 and 9 times EV/next twelve months EBITDA (one-year forward) valuation of $18.20.
CAE reported revenue of $631.6 million for the fourth quarter of fiscal year 2015, representing a 10% increase from the fourth quarter last year. Operating profit for the quarter was up 22% to $105.4 million and operating margin expanded 160 basis points to 16.7% from the fourth quarter last year. The effective tax rate for the quarter was 23% compared to 15% last year. Fourth quarter net income attributable to equity holders from continuing operations was $63.3 million ($0.24 per share), up 6% from the same period last year.
Full year fiscal 2015 revenue was $2.2 billion, an increase of 8% from fiscal year 2014. Annual operating profit increased 15% to $332.8 million, resulting in an operating profit margin expansion of 90 basis points to 14.8% from fiscal year 2014. The effective tax rate for the year was 22% compared to 13% in the prior year. Fiscal year 2015 net income attributable to equity holders from continuing operations was $201.2 million ($0.76 per share), up 7% compared to last year. All financial information is in Canadian dollars.
“I’m pleased with fourth quarter and fiscal year performance overall, having met most of our strategic and financial milestones,” said Marc Parent, CAE’s President and Chief Executive Officer. “We generated record revenues with higher operating profits, and reached a new record backlog. Our Civil business achieved double-digit revenue growth and a higher operating margin for the year, notwithstanding a slower ramp up in training centre utilization than we anticipated in the last quarter. In Defence, we achieved top and bottom line growth in a down defence market, and we reached a book-to-sales(3) ratio above one time in the fourth quarter. In Healthcare, we demonstrated strong revenue and operating income growth, reaffirming our conviction in this market. For the year, higher cash flow from operations and lower capital expenditures(4) enabled us to further strengthen our balance sheet. We look forward to more success in fiscal year 2016 and we are encouraged by the long term growth potential for CAE with its industry leading training solutions.”
Fourth quarter Civil revenue was $367.6 million, up 14% compared to the prior year period. Fourth quarter operating income was $61.8 million (16.8% of revenue), up 7% compared to last year.
Annual revenue was $1,294.6 million, up 10% compared to the prior year. Annual operating income was $210.5 million (16.3% of revenue), up 17% compared to last year.
During the fiscal year, we entered highly strategic training services agreements including new joint ventures with Japan Airlines and China Eastern Airlines, and the renewal of our training service outsourcing agreement with Iberia.
During the quarter we signed long-term training services agreements with airlines and operators in the Americas, Asia Pacific and Europe, and we received 10 full-flight simulator (FFS) orders from customers including Southwest Airlines, WestJet Encore and China Airlines, bringing the year to date total to 41. We received $398.0 million in Civil orders this quarter for a book-to-sales ratio of 1.08x. Book-to-sales ratio for the year was 1.17x. Fourth quarter Civil backlog was $2.9 billion, including our share of joint ventures.
Revenue for Defence in the fourth quarter was $234.7 million, up 2% compared to last year. Fourth quarter operating income was $39.5 million (16.8% of revenue), up 41% compared to $28.0 million (12.2% of revenue) last year.
Annual revenue was $857.4 million, up 4% from the prior year. Annual operating income was $115.6 million (13.5% of revenue), up 7% compared to $107.8 million (13.1% of revenue) last year.
During the fiscal year, we grew our training services portfolio, including the start of T-44C training for the US Navy under an innovative contractor-owned, contractor-operated training program. In addition, the CAE Brunei Multi-Purpose Training Centre, our joint venture with the Government of Brunei, officially opened and is now delivering fixed- and rotary-wing training.
During the quarter, we signed contracts involving enduring platforms and a broad range of geographies, including the provision of a C-130J weapon systems trainer for the US Air Force, M-346 simulators for the Italian Air Force, AW101 helicopter training devices for the Royal Navy, AW139 helicopter simulator for Australia’s Toll Group, and P-8A simulators for the Royal Australian Air Force. Defence customers continued to enhance and upgrade legacy training systems as they transition to additional virtual training. We signed numerous upgrade contracts, including a major visual system upgrade on the Royal Canadian Air Force’s CH-146 helicopter simulator. We also announced plans to acquire Bombardier’s Military Aviation Training business unit, which operates the NATO Flying Training in Canada (NFTC) program for the Royal Canadian Air Force and allies. In total, we received $237.8 million in Defence orders this quarter, representing a book-to-sales ratio of 1.01x. The book-to-sales ratio for the last 12 months was 0.88x. Fourth quarter Defence backlog was $2.5 billion, including joint ventures and unfunded backlog.
Revenue for Healthcare was $29.3 million in the fourth quarter, up 34% compared to the same quarter last year. Fourth quarter operating income was $4.1 million (14.0% of revenue), up nearly six-fold compared to $0.7 million last year (3.2% of revenue).
Annual revenue was $94.3 million, up 19% over the prior year. Annual operating income was $6.7 million (7.1% of revenue), up nearly four-fold compared to $1.7 million (2.1% of revenue) last year.
During the quarter, we continued to gain traction with our solutions approach, new products, and enhanced global reach. We booked a number of large orders for comprehensive solutions involving our broad portfolio of products and services. We sold a turnkey healthcare simulation training centre for the Turkmenistan Ministry of Health, including the entire range of CAE’s patient, interventional, ultrasound and simulation centre management solutions, as well as consulting, training and support services. In the U.S., we sold patient simulators, simulation centre management solutions and curriculum to Southeastern University and a community college. We also sold patient simulators and a range of other products including ultrasound simulators to customers in Southeast Asia, Eastern Europe and Africa. And in the defence sector, we sold patient simulators to the Australian Defence Forces.
We are maintaining our “Sector Outperform” rating.