A new acquisition better positions auto-parts maker Linamar Corp to benefit from an industry shift to lighter, faster cars. Double-digit gains in sales and earnings should also drive future growth.
LINAMAR CORP. (Toronto symbol LNR; www.linamar.com) make a variety of automotive parts, including cylinder heads, cylinder blocks, camshafts, crankshafts and connecting rods.
The company also makes self-propelled elevating work platforms. It sells these products under the Skyjack name.
In February 2016, Linamar purchased Montupet, a French maker of aluminum car parts, with global operations. It paid $1.2 billion for Montupet’s shares, and assumed $97.5 million of its debt.
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The purchase will let the company profit as automakers use aluminum to make cars lighter and boost fuel efficiency.
Linamar’s sales in the three months ended March 31, 2016, rose 18.8%, to $1.5 billion from $1.3 billion a year earlier.
Sales at its Powertrain/Driveline division (87% of total revenue) jumped 23.8%. In addition to the purchase of Montupet, favourable currency rates also contributed to Linamar’s gain.
That offset a 5.5% decline in sales for its Industrial division (13%) as some large customers delayed buying equipment.
Earnings in the quarter rose 11.2%, to $126.4 million, or $1.92 a share, from $113.7 million, or $1.73.
The company borrowed most of the cash it needed to buy Montupet. As a result, its long-term debt rose to $1.8 billion (as of March 31, 2016) from $537.4 million at the end of 2015. That’s a high, but still manageable, 51% of its market cap. The parts maker also holds cash of $408.4 million.
Linamar will probably earn $7.96 a share in 2016, and the stock trades at a low 6.7 times that estimate. The $0.40 dividend yields 0.8%.
I’ve held this stock in my portfolio and am so glad that I resisted the urge to sell it to increase my investment in the oil patch. Wise move if I say so myself.
This seems like a strong alternative to Magna Intl. I’m a little embarrassed to say that I did not know more about it. The analysis seems well thought out in terms of where the auto industry is going and Linamar’s ability to benefit from the market trends.
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I’ve held this stock in my portfolio and am so glad that I resisted the urge to sell it to increase my investment in the oil patch. Wise move if I say so myself.
This seems like a strong alternative to Magna Intl. I’m a little embarrassed to say that I did not know more about it. The analysis seems well thought out in terms of where the auto industry is going and Linamar’s ability to benefit from the market trends.
Family control is a little worrying, but I’ve always liked LNR more than Frank’s Magna.