Magna International Inc. (NYSE:MGA) is a global automotive supplier with 320 manufacturing centres and sales in 30 countries. The company offers products in body, exterior, chassis, powertrain, seats, electronics, vision, closures, roof systems, engineering service and contract manufacturing.
This report is the financial analysis of MGA compared with the industry competitors Continental AG (ETR:CON) and Denso Corp. (DEN) (TYO:6902).
MGA gets a final evaluation mark of 65%, that sets the company in 2nd position. A value investor with a long to mid-term investment horizon may consider CON as better alternative. The appendix describes the method used to calculate the marking. Investors with strategies in growth, momentum, speculation or short-term horizon might find that the marking method do not match with their best interest.
MGA outperforms in efficiency and shareholders’ return and underperforms in profitability, earnings & revenue and DCF valuation. All three companies obtain same mark in liquidity and financial gearing. Working capital cycle is similar between all three firms.
Profitability, a reflect of how good the company is generating income, is covered by gross profit margin, net profit margin and ROCE. The result is solid but in 3rd position in this comparison. More aggressive purchasing policies and higher value-added products will improve this financial indicator.
Efficiency, an indicator of how good is the company utilizing their assets, is covered by AUR, fixed asset utilization and P/B. MGA is outstanding, translated in 1st position in the ranking. Management should pay attention to over-capacity or obsolete equipment to do not lose its competitive advantage.
Working capital cycle, synonym of how effective the company is with its stock and payments inflows/outflows, is efficient and the same than DEN. Tighten excessive credit to customers and suppliers will improve this indicator.
Liquidity represents how well the company can cover its short-term financial duties, it is codified by current ratio and quick ratio. Financial gearing express up to what extend the organization uses non-current liabilities compared with its assets, it is covered by capital gearing and interest cover. MGA is in a healthy zone, same as CON and DEN and therefore those indicators do not contribute in the marking. MGA should monitor the fast deterioration of interest cover, a reflect of fast growing interest payable.
The indicator earnings & revenue covers the sales revenue and how those earnings are transferred to shareholders, this is marked by revenue, EPS and P/E. MGA is in 3rd position behind of its competitors, a more aggressive buy back program to reduce outstanding shares and control of operation expenses will improve EPS and this indicator as well.
Accounting valuation relies on variables dependent on assets valuation such as NAV and more holistic valuations such as EVA that includes the cost of capital. MGA is in 2nd position behind of CON. An increase in assets and goodwill will improve this kind of valuation.
DCF valuation calculates shareholders’ value for last five years and it is the only indicator that also is forecasted for next ten years. MGA falls in 3rd position. DEN and CON have bigger assets valuation that help them to escalate in the ranking. An increase in asset will help MGA for this indicator.
Shareholders’ return, a proxy of the company in the stock market, is covered by divided yield, dividend payout and TSR. MGA outperforms its peers getting 1st position in the ranking. This is a good signal that markets acknowledge positively, management should keep steadily the current direction.
The data for the current report is based on the financial data from 2012/2016, it has been excluded trailing data that helps in short-term decision making.
The download includes the complete assignment in pdf.