Going from a B+ rating to out of the portfolio was a bit of a surprise . (there is a yield showing on portfolio info chart - old news or did I miss some new news?)
We would say CAE's major competitors are other large aerospace/defense players who all have some varying degree of involvement in the aircraft simulation space. Companies like LHX, LMT, BA, and GD all have varying involvements in the simulations space. We think CAE's moat is still wide as the civil business has been strong over the long-term. The obvious mistake that can be point towards is the acquisition of the defense segment which has mainly created problems. The company has struggled to clear legacy contracts associated with this segment off its books for a while now causing margin pressure. Once the legacy contracts are cleared, CAE should see nice growth and margin improvements in defence but management stated that this could take six-to-eight quarters to occur in recent earnings. This was the major reason for removing CAE from the model portfolios. Additionally, in our flash report from Feb 2023 we noted its outlook was quite strong, but in our most recent report, guidance on margins started to wane, and this caused us to take a more cautious approach. Selling CAE also provided us with the opportunity to reduce our already high exposure to industrials and add to a smaller sector exposure, materials
At the time of report writing we felt a B+ was still warranted on the strength of the civil segement and that the defense segement had room for improvement this year. In light of recent earnings, we would like to see how defense performs this year and a potential downgrade is on the table.