Bombardier, once a stock champion, faces ouster from index
Bombardier Inc. is facing the boot from Canada’s main index as it slides toward irrelevance for equity investors.
The manufacturer’s share price has been below $1 since early March, potentially making it ineligible to stay in the S&P/TSX Composite Index and in turn the S&P/TSX 60 Index of large companies.
To be included in the composite, a company must have a minimum volume-weighted average price of $1 over the previous three months, as well as over the last 10 trading days of the month prior to the index provider’s quarterly review, according to S&P Dow Jones index methodology. For Bombardier, that average price is now sitting at about 53 cents for the three months leading up to June.
A departure from the index could hurt demand for Bombardier’s shares as exchange-traded funds drop the stock. Other managers must also decide whether to keep the shares.
Bombardier is aware of the guidelines for index inclusion but it won’t speculate on whether it will be removed in the upcoming review, said Jessica Mcdonald, a company representative.
Bombardier’s shares have continued their downward spiral despite a corporate revamp initiated by former chief executive Alain Bellemare. The stock has lost almost all of its value in 20 years.
The Montreal-based company was once seen as a Canadian champion of the industrial sector and a source of pride for Quebec. It is now a shadow of its former self after ceding its marquee jet program, now known as the A220, to Airbus SE and agreeing to sell its rail business to French train maker Alstom SA in the face of more than US$10 billion in debt.
The company’s market capitalization peaked at $36.2 billion in the summer of 2000. Today it’s $1.6 billion.
Bellemare’s restructuring means Bombardier has made an all-in bet on the corporate jet market. That left the company, now led by Eric Martel, particularly exposed as the pandemic shuttered travel globally and cut corporate spending. Still, it’s possible that sales of private jets, which allow for physical distancing among passengers, may come back faster than commercial travel.
The company’s shares jumped as much as 28 per cent Tuesday after Bank of Nova Scotia upgraded its stock rating to the equivalent of a hold. Analyst Konark Gupta said in a report he sees “some green shoots” in the macro and industry indicators he monitors.