Mila (concept car division of Magna-Steyr) Alpin, 2008, seen at MOTOR SHOW ESSEN 2010 (Photo credit: Wikipedia)
MGA : NYSE : US$81.16
MG : TSX : C$83.90
BUY
Target: US$89.00
COMPANY DESCRIPTION:
Magna is a one of the world’s largest and most diversified Tier 1 automotive components suppliers, active in 25 countries. The company also provides complete vehicle assembly services through its subsidiary, Magna Steyr.
All amounts in US$ unless otherwise noted.
BUY for strong growth story
We continue to recommend BUYing MGA to benefit from good EPS growth from modest sales growth, margin expansion and share buy backs. Margins should especially benefit from European and eventually emerging market (Rest of World or ROW) operating improvements and lower new facility costs.
Net, we expect these factors to drive low double-digit EPS growth/year.
Management meetings reconfirm growth potential
Highlights include:
European margin improvement could happen faster than expected, There is upside potential to MGA’s European margin improvement target,
MGA’s product mix seems likely to evolve, but we do not expect it to change substantially, as MGA is already a leader in most of its product areas, and
We expect free cash flows to be spent on acquisitions and/or share buy backs, which should drive EPS growth. We expect acquisition discipline and acquisition opportunities to be lower.
High valuation, but supported by positive growth dynamics MGA’s valuation remains on the high side (see valuation section), but we think it can remain there given positive industry and company dynamics. Such dynamics support good EPS growth and the potential for upside surprises and positive forecast revisions, as per this quarter.
We have maintained our valuation multiple at 6.0x EV/NTM EBITDA, a roughly 1x multiple premium to MGA’s normal range given the positive growth dynamic thesis. The resulting target is moderately above our $83.27 DCF analysis.
Related articles
- Magna International’s Top Strategist Steps Down (dailyfinance.com)
- Magna Announces Second Quarter and Year to Date Results (prnewswire.com)
- Magna eyeing acquisitions in China and Russia (macleans.ca)
