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Toronto rail win lifts Bombardier's train division

$1.2-billion contract

By Scott Deveau, Financial Post
April 25, 2009

The Street is viewing a $1.2-billion contract to provide the Toronto Transit Commission with light-rail vehicles that is expected to be awarded to Bombardier Inc. this week as further evidence the Montreal manufacturer’s train division will help carry it through the current economic crisis.

The deal to provide 204 trams, which is expected to voted on and approved on Monday, carries with it the option for up to an additional 400 vehicles to be ordered, which would increase its value by another $2-billion, if all options were exercised, says David Newman, National Bank Financial analyst.

“We believe this impending announcement highlights Bombardier Transportation (BT) as a well-positioned, quasi infrastructure play,” he said in a note to clients, adding that the contract could add between 2¢ and 6¢ to its annual earnings per share once deliveries commence.

The first vehicles are expected to be delivered in 2011.

While the outlook for Bombardier Aerospace, and in particular its business jet division, has been grounded by the current economic crisis, Mr. Newman noted the TTC order is in keeping with management’s commentary that its rail division will not be similarly affected during the economic crisis.

The Montreal transportation giant currently has 16 sizeable outstanding tenders for rail contracts around the globe, the largest of which is for 3,000 high-speed train cars in China, says Chris Murray, CIBC World Markets analyst.

Other potential contracts include tenders for intercity trains in Germany, high-speed trains in Italy, and 340 metro cars for the Montreal subway system .

“The TTC award is typical of what we would expect to see for awards to Bombardier in the near future,” Mr. Murray said in a note to clients.

“While we expect some stimulus packages announced by governments worldwide may not have a significant impact, particularly in the U. S. market, we believe stimulus spending opportunities do exist.”

Bombardier’s management has said it has not seen much in the way of stimulus dollars being converted to orders. Once the funds find their way into infrastructure projects, they expect to see some increase in orders.

Mr. Murray noted that Bombardier has already won one such contract in France to supply commuter rail cars in the Paris suburbs with its partner Alstom SA, and is “very well-positioned” to benefit from Chinese expenditures on infrastructure and rail development.

“We expect the company to capture a significant portion of bids that are outstanding given its leading market presence and product line,” Mr. Murray said.

“Transportation will continue to be a growth market for some years to come, given environmental concerns, a strong replacement cycle similar to the requirements for Toronto, and the trend to increasing urbanization.”

scdeveau@nationalpost.com


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