Company Overview: General Motors Company (NASDAQ: GM) is engaged in building and selling trucks, crossovers, automotive parts, and cars all over the world. The company along with its strategic partners is engaged in the production, selling and manufacturing of cars, trucks, and parts under four core brands – Chevrolet, Buick, GMC, and Cadillac. The company operates under three operating segments, called General Motors North America General Motors International, Cruise and GM Financial. The Cruise segment is engaged in the expansion and commercialization of autonomous vehicle technology, whereas GM Financial offers retail loan and lease lending across the credit field.
 

GM details
 

 
GM Rides on Cost Cutting Initiatives & Turnaround Strategies: General Motors Company (NASDAQ: GM) is engaged in designing, developing, and promoting trucks, crossovers, cars, and automobile parts across the globe and possesses an interest in the growing autonomous vehicle business. The company has its Headquarter in Detroit, Michigan and was founded in 2009. The company reportedly has total North America’s market share of ~16.5%, as per the Annual Report 2019. The company also offers automotive financing services via General Motors Financial Company, Inc.
 
The company’s automotive operations help to meet the growing demand of GM’s customers through GM North America (GMNA) and GM International (GMI). GMNA meets the increasing demands of customers in North America by developing, manufacturing, and marketing vehicles in the Buick, Cadillac, Chevrolet, and GMC brands. Coming to GMI, it helps to address the growing demands of customers outside North America. In FY19, GMNA and GMI accounted for 76.4% and 23.6% of total revenues, respectively.
 
GM’s total net sales and revenues increased from FY15 Figure of $135.7 billion to $137.2 billion in FY19.  GM has been investing in new technology and service enhancement, with an enhanced focus on its supply chain capability of supporting high volume production. The company declared a dividend of $1.52 per share in FY19, up from $1.38 in FY15, thereby depicting a history of delivering sustained shareholder returns.
 

Historical Financial Performance (Source: Company Reports)
 
The company’s turnaround strategy has been noteworthy as the company is pacing up efforts to embrace an electric future and gain a strong position in the fast-rising market. The company plans to invest greater than $20 billion through 2025 to introduce next generation all-electric and autonomous vehicles powered by new-low cost batteries. The company also plans to roll out 11 new electronic vehicles as part of its impressive plans through the same time period, including at least 20 new models by 2023.
 
It is worth mentioning that, General Motors’ dedication to enhance shareholders' returns makes it an attractive pick for the investors. It is to be noted that the company has been regular to pay dividend for each quarter since 2014 and the payout also appears reliable with respect to earnings and free cash flow. This is expected to strengthen the company’s long-term prospects. 
 
The company took necessary steps to reopen several U.S. factories, that was kept idle since-March due to the COVID-19 outbreak. The company is making efforts to deliver new vehicle financing programs to increase demand during such economic uncertainty. The carmaker is also implementing a number of strategies to enhance its cash position in a bid to sail through the coronavirus crisis.
 
A Look at GM’s 1QFY20 Operational Highlights: During the quarter, the company reported adjusted earnings of 62 cents per, which decreased 56% year over year. In 1QFY20, the company’s revenues stood at $32,709 million, which decreased from $34,878 million reported in the prior corresponding period. GM International’s (GMI) sales during the quarter increased ~ 27% year over year, with a significant gain in retail market share. The company managed to hold around 41% of combined light and heavy-duty segments in the first quarter. Though in February, the company witnessed a slowdown in sales due to coronavirus outbreak, however, the industry started to pick up in March, reducing the monthly sales decline.
 

1QFY20 Highlight (Source: Company Report)
 
Segmental Highlight: During the quarter, the company’s GM North America (GMNA) segment’s revenues stood at $25,831 million, down from $27,365 million reported in the prior corresponding period. Notably, sales from vehicles stood at 775,000 units, indicating a decline of 9.7% on a year over year basis. Profits from the segment climbed from $1,896 million reported in the year-ago quarter to $2,194 million, on the back of robust sales of SUVs and light-duty pickups. Cost-cutting implementations were key positives during the quarter. 
 
Net revenues from GM International’s (GMI) also declined from $3,850 million to $3,280 million in 1QFY20. Notably, sales from vehicles stood at 191,000 units, indicating a decline of 19% on a year over year basis. The segment’s operating loss stood at$551 million as compared to a profit of $31 million reported in prior corresponding. Lower sales from China due to COVID-19 pandemic negatively impacted the segment.
 
Net revenues from GM Financial during the quarter stood at $3,561 million, down from $3,620 million reported in 1QFY19. Profits from the segment declined from $359 million reported in the year-ago quarter to $230 million. 
 
GM Cruise segment net revenue stood at $25 million, with an operating loss of $228 million.
 
Strong Balance Sheet & Cash Flow Position:  The company exited the period with cash and cash equivalents of $38.5 billion, and long-term automotive debt amounting to $28.6 billion. Total asset at the end of the period came in at $246.6 billion. Operating cash inflow for the first quarter came in at $1.56 billion as compared to cash outflow of $81 million. General Motors exited the first quarter of fiscal 2020 with $33.4 billion in automotive liquidity, which covered ~$16 billion drawn down from the credit revolvers. Under the 3-years of revolving credit agreement, the company expanded $3.6 billion to April 2022, in order to stay afloat with the downturn triggered by COVID-19 led crisis. 
 

Cash Details (Source: Company Report)
 
Key Developments: In a recent announcement, the company signed a $489.4 million contract with the U.S. Department of Health and Human Services (HHS) to build 30,000 ventilators in teamwork with Ventec Life Systems for the national stockpile to support COVID-19 patients. In another update, the company stated that it delivered over 461,700 vehicles in China in a challenging first quarter, mainly due to the supporting control and prevention measures amid coronavirus pandemic. Also, the company and Honda Motor Co., Ltd. entered a collaborative agreement to jointly develop two electric vehicles (EV) for the latter. The EVs will be built at the North American manufacturing facilities of GM.
 
Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 45.42% of the total shareholding. The Vanguard Group, Inc. and Capital World Investors hold the maximum interests in the company at 7.29% and 7.02%, respectively.
 

Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)
 
Key Metrics: The Company reported 1QFY20 gross margin at 8%, higher than the Dec’19 quarter’s figure of 5.6%. The EBITDA margin, during Mar’ FY20, stood in at 18.2%, higher than the industry median of 9.6% and the Dec’19 figure of 11.9%. Net margin, in the same time span, stood at 0.9%, higher than the Dec’19 figure of (0.6%). Mar’ FY20 Return on equity stood at 0.7%, higher than the Dec’19 negative ROE of 0.4%.
 

Key Metrics (Source: Refinitiv, Thomson Reuters)
 
Outlook: The company’s robust liquidity level is directed at meeting cash requirements for the coming few months, which consists of new originations, without exposure to the capital markets. The company’s focus to maintain cash liquidity and take necessary actions to stay afloat in this difficult time will give it a competitive advantage and will aid the company to come out stronger in the long run.
 
The Automotive industry is seeing a considerable change in the working environment. The rise in digitalization and the increased usage of new and enhanced technology are causing structural changes in the automotive market. The industry participants are therefore compelled to shift toward electric and self-driving vehicles. Considering the changing dynamics, the auto companies have witnessed a drastic change in the business models. Thus, the company’s transformation strategies to stay ahead in this ever-changing environment will strengthen its position, going forward. 
 

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)
 
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Based Valuation (Source: Refinitiv, 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 $25.48 with a market capitalization of ~$36.99 billion. The stock made a 52-week low and high of $14.32 and $41.90 and is currently trading below the average of its 52-week trading range. The stock has corrected by ~29.3% and ~33.27% in the last three months and one year, respectively. The company intends to enhance its brand presence by making tough, strategic decisions regarding markets and products in which GM will invest and compete. Considering the above factors and the potential of the company despite the prevailing crisis, we have valued the stock using EV/EBITDA multiple based illustrative relative valuation and arrived at a target price with an upside of lower-double digit (in % terms). Hence, we recommend a “Buy” rating on the stock at the closing price of $25.48, up 3.2% on 20 May 2020.

 
GM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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