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:

• Strong revival from Light Vehicle Production Volumes: The company reported a strong revival in its Light Vehicle Production and reported 41% and 37% y-o-y growth from North America and Europe in H1FY21 to 7,049 units and 9,310 units, respectively. Moreover, production from China stood at 12,072 units in H1FY21, reflecting a growth of 33% on y-o-y basis. The growth was primarily driven by higher global light vehicle production and higher assembly volumes, which is a key positive for the company.              

• Improved Margins and profitability: The company reported an impressive performance in the recent past, wherein the company reported an adjusted EBIT of USD 1,327 million in H1FY21, as compared to a loss of USD 197 million in pcp. Moreover, Adjusted EBIT stood at 6.9% in H1FY21, as compared to (1.5%) in pcp. This was supported by strong profitability from Body Exteriors & Structure and Power & Vision segments, cost savings and operating efficiencies coupled with implemented restructuring activities and improved revenue mix etc.
• Product Upgradation: The company has upgraded its Magna Mezzo(TM) Panel, which would get functionality of electric vehicle front ends. Moreover, the product offers innovative designing options with seamlessly integrate advanced driver assistance system (ADAS) capabilities.

Q2FY21 Financial Highlights:

• MG declared 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 posted a net income of USD 424 million, as compared to a net loss of USD 647 million in pcp.

Source: Company Report

Risks:  The product of the company requires constant innovations and upgradations in order to remain competitive. Hence, the company might witness higher research and development costs, which might take a toll on the margin and cash flows. Moreover, any slowdown in automotive sector would weigh on the company’s performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The group reported encouraging performance in the recent past and posted cash from operations of USD 1,189 million in H1FY21, as compared to a cash used of USD 593 million in pcp. Notably, the company reported a higher dividend distribution of USD 257 million in H1FY21, as compared to USD 237 million in pcp. We have valued the stock using the Price to CF-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 104.16 on August 18, 2021.

One-Year Technical Price Chart (as on August 18, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Spin Master Corp.

Spin Master Corp. (TSX: TOY) is a children's entertainment company operating in the nearly USD 90 billion global toy industry. The group creates, designs, manufactures, and distributes a portfolio of products, brands, and entertainment properties across five key categories, namely outdoor, remote control and interactive, boys action and construction, preschool and girls, and activities games and puzzles and plush. 

Key Highlights:

• Ample Liquidity: The company reported available liquidity of USD 828.4 million, which included a cash balance of USD 310.7 million and USD 517.7 million of funds under credit facilities. The management believes that the current liquidity level is sufficient to meet its short term and long-term capital requirements.
• Operational Update: The company reported its Bakugan® franchise would be the first-ever to premiere a full-length series episode on  The above would boosts the group’s digital content segment, card game and video games, and is expected to engage its customers with immersive viewing experience on Roblox. 

Q2FY21 Financial Highlights:

• TOY declared its quarterly results, wherein the company posted improved revenue of USD 8 million, v/s USD 281.1 million in the previous corresponding period (pcp). The growth was supported by strong growth from North America and the European geographies.
• Gross profit surged to USD 9 million, from USD 118.2 million in Q2FY20. The increase was majorly due to a higher income, partially offset by a slightly higher cost of sales (USD 180.9 million v/s USD 162.9 million in pcp).
• The quarter was marked by a higher administrative expense (USD 5 million, v/s USD 55.2 million in pcp), and a higher selling, marketing, distribution and product development costs (USD 71.6 million, v/s USD 59.6 million in pcp).
• The company reported a net income of USD 5 million, as compared to a net loss of USD 14.9 million in Q2FY20.

Source: Company Report

Risks: Change in consumer preference might dampen the demand scenario. Moreover, any adverse economic condition might take a toll on the Company’s cash flows due to lower demand for the products.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

The company witnessed a revival in its operating performance in the recent past, supported by improved operational activities from the USA and Europe, which is a key positive. Moreover, the group reported higher traction from the digital segment. Adjusted EBITDA stood at USD 118.5 million for H1FY21, as compared to a loss of USD 10.8 million in pcp. 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). Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 47.63 on August 18, 2021.

One-Year Technical Price Chart (as on August 18, 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.