Company Overview: General Motors Co designs, builds and sells trucks, crossovers, cars and automobile parts worldwide. The Company also provides automotive financing services through General Motors Financial Company, Inc. (GM Financial). GM North America (GMNA) and GM International (GMI) are its automotive segments. GMNA and GMI are meeting the demands of customers with vehicles developed, manufactured and/or marketed under the Buick, Cadillac, Chevrolet and GMC and Holden brands. Its brands offer luxury cars, crossovers, sport utility vehicles (SUVs) and sedans. The Company’s Car-and Ride-Sharing Maven is a shared vehicle marketplace. Through its subsidiary, OnStar, LLC (OnStar), it provides connected safety, security and mobility solutions for retail and fleet customers. GM Cruise is its global segment engaged in the development and commercialization of autonomous vehicle technology.
 

GM Details
 
Retained Robust Market-share Amidst Global Slowdown: General Motors Company (NASDAQ: GM) designs, develops and promotes trucks, crossovers, cars and automobile parts across the globe and possesses an interest in the growing autonomous vehicle business. The Group also provides automotive financing services and operates through General Motors Financial Company, Inc. (GM Financial). As per the operational activities, the business is categorized into five operating segments namely, GM North America (GMNA), GM International Operations (GMIO), GM South America (GMSA), Cruise, and GM Financial. With the intention to transform GM into the world's most valued automotive company, the Management has adopted several strategic plans, which include several major programs that are likely to redefine the future of personal mobility and advance the vision of zero crashes, zero emissions, zero congestion. The Group also focuses on strengthening the core business by earning customers for life by delivering winning vehicles, ensuring the industry with quality and safety.  

Considering the FY18 results, total net revenue posted a growth of 1% to $147,049 million, as compared to $145,588 million in FY17. The company turned into a profit of $8,014 million in FY18 from a loss of $3,864 million in FY17. Looking at the past performance, GM delivered a CAGR of ~2.71% in revenue over the period of FY14 to FY18. The Company has a robust market share of 30.8% and 14.2% across the US Truck segment and US Crossover segment while the business holds ~16.6% of market share within the United States, increased from 15.8% in pcp. Worldwide market share of GM stands at 8.5% as on 30 September 2019.
 
Going forward, the Company identifies the Chinese market as one of the important divisions to the global growth tactics and the company is employing a multi-brand strategy led through the Buick, Chevrolet and Cadillac brands. In the coming years, the business plans to deploy the global architectures in order to enhance the product line under the Buick, Chevrolet and Cadillac brands in China. GM continues to focus its business under the local brand names such as Baojun and Wuling. The company is focusing its expansion in less developed cities and markets under the brand name of Baojun. 
 

Market Share Details (Source: Company Reports)

Revenue Recognition: In order to track the revenue and the market share of the business, the company represents both wholesale and total vehicle sales data, derived from the business. Wholesale vehicle sales data comprises sales to GM's dealers and distributors, including the sales to the U.S. Government while eliminates vehicles sold through joint ventures. Wholesale vehicle sales data related to GM's revenue, is identified from the sale of vehicles, which is the largest component of Automotive net sales and revenue.

Q3FY19 Operational Highlights for the Period ended 30 September 2019: The quarter was marked by demand pickup from the full-size truck segment. The business witnessed volume pickups from both light-duty and heavy-duty variants and gained more than 8 percentage points of retail market share in the segment through September. Sales from the Chevrolet Silverado and GMC Sierra LD models reported a robust growth of 18% and 38% on a y-o-y basis. The quarter witnessed improvement in the overall pricing of the Company’s all-new pickups at about $2,200 on y-o-y basis. The Company focused on the production of crew cabs, which reported a 19% growth in the delivery.
Top-line during Q3FY19 was reported at $35.47 billion, down 0.9% on y-o-y basis due to the decrease in wholesale volumes across the Asia/Pacific and in Brazil primarily due to phase out of the Chevrolet Cobalt and the Chevrolet Onix and unfavorable foreign currency effect resulting from the weakening of the Argentine Peso against the U.S. Dollar. Net income of the company came in at $2,351 million as compared to $2,534 million in the previous corresponding quarter. Adjusted EBIT stood at $2,966 million, declined from $3,153 million in the previous corresponding period.

Q3FY19 Income Statement Highlights (Source: Company Reports)

Segment Highlights: 
GM North America: The Company reported total net sales and revenue of $27,971 million from North America as compared to $27,650 million in the previous corresponding period. EBIT on an adjusted basis stood at $3,023 million, up 7% on y-o-y basis, while EBIT margin on an adjusted basis stood at 10.8%, improved from 10.2% in Q3FY18. Wholesale vehicle sales stood at 801,000, declined 5% from the previous corresponding quarter.


Q3FY19 Operational Highlights from North American Segment (Source: Company Reports)

GM International: The above segment reported income at $3,794 million, reported a decline of 17.2% from Q3FY18. The business reported an EBIT loss of $65 million as compared to an EBIT profit of $139 million in Q3FY18. During the quarter, GM reported total wholesale vehicle sales of 232,000 as compared to 289,000 in Q3FY18.


Q3FY19 Operational Highlights from GM International Segment (Source: Company Reports)

GM Financial: The segment reported total revenue of $3,659 million with an EBT on an adjusted basis at $711 million as compared to revenue of $3,518 million and EBIT of $498 million in the previous corresponding period. Average debt outstanding came in at $90.5 billion, depicting an increase of 5.7% on y-o-y basis. During the quarter, the Company’s EBIT on an adjusted basis grew primarily due to increased finance charge income of $0.1 billion due to growth in the retail and commercial finance receivables portfolios.


 Q3FY19 Operational Highlights from GM Financial Segment (Source: Company Reports)

China Performance: The sales performance from China segment stood lower by ~11% on y-o-y basis, which is lower than the industry on account of the shift in the segment and lower demand of its existing models. Amidst the softening of demand conditions persisting across the sector, Cadillac reported 11% y-o-y growth in sales aided by the improved demand from XT4 and XT5 models.

Balance-Sheet and Cash-Flow Highlights: The business reported total current assets at $80,565 million as compared to $75,293 million in Q3FY18 while total assets stood at $231,529 million as compared to $227,339 million in the previous corresponding period. The company reported long-term debt at $12,448 million from the automotive segment, decreased from $13,028 million in Q3FY18. As on 30 September 2019, the company reported total equity at $48,771 million. The company reported net cash used in investing activities at $9,691 million as compared to $14,575 million in Q3FY18. The capital expenditure includes expenditure for the property at $4,852 million, net purchases of leased vehicles at $12,488 million while the net purchases of finance receivables stood at $19,027 million. The company reported net cash provided by operating activities at $11,548 million and net cash used in financing activities at $2,345 million during the third quarter of FY19.

Outlook: As per the FY19 outlook, the Company expects, capital expenditure at $7.5 billion on account of the actions taken to accelerate the CAPEX target. Diluted EPS is expected at $4.28 to $4.69, while Auto operating cash flow is anticipated at $5.5 billion to $7.5 billion. Adjusted Auto free cash flow is expected within $1 billion. For FY19, the Company expects the impact of strike across the American segment is likely to have an impact of ~$(2.00) per diluted share. Within the China segment, Cadillac is likely to attract the customers within the steadily growing luxury SUV segment.

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 43.95% of the total shareholding. Capital World Investors and the Vanguard Group, Inc. hold the maximum interests in the company at 7.41% and 7.1%, respectively.


Top 10 Shareholders (Source: Thomson Reuters)

Key Metrics: The Company reported mixed numbers in Q3FY19, wherein GM reported gross margin at 12.2% as compared to 11.7% in Q3FY18. The EBITDA margin, during Q3FY19, came in at 16.6%, higher than the industry median of 10.1% and 15.0% in Q3FY18. Operating margin during the third quarter of FY19 came in at 6.5%, improved from 4.5% in Q3FY18 and higher than the industry median of 5.8%. Debt to equity during the quarter stood at 2x, improved from 2.69 in the previous corresponding quarter. Return on equity, during the third quarter of FY19 stood at 5.4%, higher than the industry median of 2.4%.


Key Valuation Metrics (Source: Thomson Reuters)
 

Key Metrics (Source: Thomson Reuters)

Valuation Methodologies: 
Method 1: Price to Earnings Multiple Approach

PE Based Valuation (Source: Thomson Reuters)

Method 2: Price to Cash Flow based Approach 

Price to Cash Flow based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of GM closed at $35.15 with a market capitalization of $51.026 billion. The stock is currently quoting at the lower band of its 52-week trading range of $33.08 to $41.90. The stock has generated negative returns of ~4.09% and ~10.24% in the last three months and six months, respectively. The stock has corrected ~6.39% in the last one year. The business is emphasizing on enhancing the customer experience through technology and innovation, which includes electrification, autonomous vehicles and data connectivity. The business indents to enhance its brand presence through making tough, strategic decisions regarding markets and products in which GM will invest and compete. GM is in the continuous effort to build profitable adjacent businesses and targets 10% core margins on an EBIT-adjusted basis. Considering the aforesaid facts, we have valued the stock using two relative valuation methods, i.e., Price to Earnings multiple and Price to Cashflow multiple. For the matter, we have taken the peer group - Ford Motor Co (NASDAQ: F), Bayerische Motoren Werke AG (NASDAQ: BMWG), Renault SA (NASDAQ: RENA), etc., and arrived at a target price of higher single-digit upside (in % terms). Hence, we recommend a “Buy” rating on the stock at the closing price of $35.15 as on 15 January 2020.
 
 
GM Daily Technical Chart (Source: Thomson Reuters)

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