Unlocking Value in a Secularly Growing Industry
CAE Inc.: A Market Leader in Flight Training and Simulation Technologies
CAE Inc., a Canadian multinational company, specializes in flight training and simulation technologies, operating through two segments: Civil Aviation and Defense and Security. The company’s enviable position in a growing industry, combined with its market leadership, makes it an attractive investment opportunity.
A History of Underperformance
Despite its strong market position, CAE has underperformed in the past five years, delivering a return of -8.75% compared to a nearly 101.78% return for the five years prior. The company’s FY24 results missed analysts’ expectations, reporting an operating loss of $185 million in Canadian dollars.
A Call for Change: Browning West’s Activist Approach
Browning West, an independent investment partnership, has taken notice of CAE’s underperformance and sees an opportunity for growth. The firm, known for its concentrated and long-term approach to investing, focuses on leadership changes and has a history of assisting in CEO succession at its portfolio companies.
A Letter to the Board: Collaboration in CEO Recruitment
On December 20, 2024, Browning West sent an open letter to CAE’s board, calling for collaboration in the recruitment process for a new CEO. The firm believes that the board must avoid a hasty CEO search process and instead work to recruit a proven CEO with a verifiable track record of value creation.
A Proven Track Record of Success
Browning West’s principals have an admirable history of assisting in CEO succession, including the reinstatement of Glenn Chamandy as CEO of Gildan Activewear, which resulted in a nearly 30% appreciation in shares. The firm’s co-founder and CIO, Usman Nabi, has extensive experience in conducting CEO searches and has served on and/or led nomination and CEO search committees at Tempur Sealy and Six Flags.
A Choice for CAE’s Board
CAE’s board has a choice: it can embrace Browning West’s experience in CEO succession, like other companies have successfully done, or it can fight the investor, potentially facing similar consequences as Gildan Activewear. The decision will ultimately determine the future of CAE and its ability to unlock value for its shareholders.
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