Magna International Inc.

Magna International Inc. (TSX: MG) is a mobility technology company and has 342 manufacturing operations and 91 product development, engineering, and sales centres and has operations across more than 27 countries.

Key Highlights:

• Higher Dividend distribution amidst turbulent economic scenario: Despite the ongoing economic slowdown, the company reported a higher dividend distribution of USD 257 million in H1FY21, as compared to USD 237 million in pcp. Moreover, the stock carries a decent dividend yield of ~2.2% amid a low interest rate environment.
• Cash flow turned positive: In H1FY21, the company reported a positive cash flow of USD 1,189 million, as compared to cash used of USD 593 million in pcp. The increase was driven by a net profit of USD 1,058 million, as compared to a net loss of USD 400 million in pcp.
• Revival in operations: In H1FY21, the company posted tremendous sales growth from all of its reporting segments, supported by strong volume growth within the light vehicles categories across the globe. Moreover, added traction for the new launches by several tier 1 automobile companies (MG’s clients) also supported the growing demand dynamics.

Q2FY21 Financial Highlights:

• MG impresses with its quarterly result, wherein the group reported sales of USD 9,034 million, jumped from USD 4,293 million in the previous corresponding period (pcp). The growth was driven by strong recovery from Body Exteriors & Structures, Seating Systems and Power & Vision segments.
• The quarter witnessed a surge in the cost of goods sold (USD 7,728 million v/s USD 4,206 million in pcp), coupled with an increase in selling, general and administrative costs (USD 419 million v/s USD 378 million in pcp).
• Income from operations before income taxes climbed to USD 540 million as compared to a loss of USD 789 million in pcp.
• The company turned profitable and posted a net income of USD 424 million, as compared to a net loss of USD 647 million in pcp.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks:  Any slowdown in the automotive industry would affect the demand of the group’s offerings.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

For FY21, the company expects its total sales in between USD 40.2 – USD 41.8 billion, while adjusted EBITDA margin is expected in between 7.2% – 7.6%. Total capital expenditure is expected nearly about USD 1.6 billion. The company expects its production volume at around 24.7 million from China, 18.5 million from Europe and 15.6 million from North America. We have valued the stock using the Price to Earnings-based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Borgwarner Inc, Lear Corp etc. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 96.80 on September 17, 2021.

One-Year Technical Price Chart (as on September 17, 2021). Source: REFINITIV, Analysis by Kalkine Group

Brookfield Renewable Partners L.P.

Brookfield Renewable Partners L.P. (TSX: BEP.UN) is a renewable power generating company which holds a portfolio of renewable power generating facilities within North America, Latin America, and Europe.               

Key Highlights:

• Diversified Asset base: Within the renewable segment, the company operates through a diversified portfolio like hydro, wind, solar and energy transmission. The above provides significant risk mitigation for the company. As the developing nations are leaning towards renewable sources of energy, we believe the company is well poised to benefit from the growing demand from the sector.
• Growth in funds from operations amidst economic turbulence: The company reported higher funds from operation of USD 510 million in H1FY21, compared to USD 449 million in H1FY20. The growth was supported by improved electricity generations during the period. Notably, Actual generation stood at 28,511 GWh in H1FY21, higher than 27,528 GWh in pcp.
• Ample Liquidity: The company reported ample liquidity of ~USD 3.3 billion, which seems to be sufficient to meet its both working capital requirements and upcoming investments. Moreover, the company does not have any near-term maturities, which indicates retention of the fund. The company’s operations are capital-intensive in nature, and hence, liquidity plays a pivotal role.
• Offering a decent dividend yield: The stock is offering a dividend yield of more than 3%, which is decent considering the current interest rate environment.

Q2FY21 Financial Highlights:

• UN declared its quarterly results, wherein the group posted revenue of USD 1,019 million, improved from USD 942 million in the previous corresponding period (pcp). During the quarter, actual generation stood at 14,683 GWh, as compared to 13,264 GWh in Q2FY20.
• The group witnessed a marginal slide in direct operating costs (USD 307 million v/s USD 310 million in Q2FY20). Meanwhile, the group saw a tremendous surge in management service costs (USD 72 million, v/s USD 46 million in pcp), while other costs soared to USD 36 million, as compared to USD 3 million in pcp. Notably, the company reported a lower interest expense at USD 246 million, as compared to USD 261 million in pcp.
• The company turned profitable and posted a net income of USD 110 million, as compared to a net loss of USD 10 million in pcp.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: Higher input costs may dampen the company’s profitability and cash flows in the coming quarters. Moreover, the group has reported a consistent surge in the debt component, which is likely to take a toll on the overall financial flexibility of the group.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company has a strong pipeline of more than 31,000 MW, which is expected to add prospects to the company’s future performance. Consolidated Adjusted EBITDA stood higher at USD 1,613 million in H1FY21, as compared to USD 1,434 million in pcp. We have valued the stock using the Price to Cash Flow based relative valuation method and have arrived at a single-digit upside (in percentage terms) potential. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of BEP.UN at the last closing price of CAD 49.64 on September 17, 2021.

One-Year Technical Price Chart (as on September 17, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.