Magna International is a global automotive supplier and one of the largest auto parts manufacturers in the world. It is a mobility technology company inventing new products and processes for the future. The company engages in the supply of systems and components to every major original equipment manufacturer.
Magna International has operations across five continents and 28 countries. The company operates through a large network of 347 manufacturing and 84 product development, engineering, and sales centers worldwide. North America is its largest market accounting for nearly half of the company’s sales; Europe and Asia are the other major markets.
Magna International’s key segments are Body Exteriors & Structures (40% revenue), Power & Vision (31%), Seating Systems (~13%), Complete Vehicles (~18%) and corporate & others (-2%). The company has total vehicle engineering and manufacturing expertise, as well as product capabilities. It also possesses electronic and software capabilities.
MG is also available as a dual listed stock trading under MGA on the NYSE.
Key Investment Data
- Opportunity Score: 49
- Ticker: TSE:MG
- Sector: Consumer Cyclical
- Industry: Auto Parts
- Market Cap: 31.30B
- P/E: 22.91
- Dividend Yield: 2.05%
- Payout Ratio (TTM): 44.20%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 3/10
- Dividend Income Fit: 3/10
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Revenue Growth & Market Exposure
Magna International manufactures all the necessary parts to build complete vehicles ranging from seating systems to body exteriors, structures, and powertrains. Magna’s world-class manufacturing and product and process innovations have enabled the launch of new vehicles worth billions of dollars each year. The company partners with leading car brands including Mercedes-Benz, BMW, Jaguar, and Toyota, etc. and helps to introduce unique features powered by Magna technology.
With over six decades of experience in the auto industry, the company has become customers’ preferred choice. Magna’s deep product expertise, complete vehicle engineering, and assembly operations support new collaborations and JVs for futuristic trends.
A few of the recent ones include a joint venture with LG Electronics to manufacture e-motors, and with HASCO Magna Electric Drive System Ltd. The company is expecting over 50% sales CAGR over the next few years in LG JV. Magna’s popularity can be gauged by the fact that its products can be found on most vehicles today.
The company is leading the way in all areas of future mobility, with a strong focus on electrification and autonomy. Futuristic trends such as lightweight, electrification, autonomy, and smart mobility provide ample opportunities for growth.
It is also expanding its footprint in China which is the world’s largest new-vehicle market. The company expects global light vehicle production to grow 6% on average per year from 2020-2023, and sales to grow 10%-12% on average per year over that time frame.
Given its large geographic footprint, the company is favorably placed to address every major automaker in the world. The global automotive supply business is estimated to be a $1-trillion opportunity and Magna is in a good position to leverage its systems and complete vehicle knowledge to unlock new business. COVID-19 has been impacting vehicle sales.
However, the company’s earnings in the second half of 2020 outperformed the second half of 2019. Global light vehicle production increased by 18% YoY, in Q1 2021, driven by an 87% increase in China. Magna International is expecting future growth to be driven by the demand for lightweight solutions, Advanced Driver Assistance Systems (ADAS), and electrified products.
Magna International is a Canadian dividend aristocrat having compounded its dividend growth at an impressive 22% annually, over the last decade. The company last raised its dividend by almost 7.5%, representing more than 10 years of consecutive annual dividend increases.
Magna returned $280 million to shareholders through $150 million in share repurchases and $130 million in dividends. The company currently sports a dividend yield of 1.78% and a reasonable payout ratio of 46%.
The company is expecting to return 35%-40% and 10%-15% of operating cash flow in share repurchases and dividends to shareholders. The company has estimated a free cash flow of $1.6-$1.8 billion in 2021 and $5.5-$6 billion in 2021-2023.
Strong earnings and cash flow growth should enable the company to keep paying and raising dividends in the future. The company has also identified annual structural cost savings of $200 million, which it expects to fully realize over the next few years.
The car builder continues to invest in areas of engineering aligned with megatrends, including electrification, autonomy, and new mobility. The company is investing in new technologies and innovative features such as ADAS features, autonomous features including valet park driver monitoring systems and 3D surround view, scalable powertrain variants, etc. World-class manufacturing facilities, an innovative product portfolio, and an experienced management team are the company’s strong competitive advantages.
The automotive supply industry is highly competitive. Magna competes with traditional automotive suppliers and several established electronics and semiconductor companies that are expanding their presence in the automotive industry.
Magna competes with the likes of Linamar Corp, Martinrea International, Uni-Select Inc, Exco Technologies, Westport Fuel Systems, etc. As the only auto supplier to build complete vehicles, Magna enjoys a strong competitive edge over its peers. The company is well-positioned for a transition to electrification.
As one of the world’s largest and most advanced technology suppliers in the mobility space, the company is at the forefront of the technological revolution in the automotive industry. A complete vehicle systems knowledge and a proven track record of technological advancements position Magna well for the future where electrification, autonomy, and smart mobility are intertwined.
The company continues to expand its offerings, capabilities, and evolving business models and strategic partnerships to drive shareholder value. Investment in futuristic ideas positions Magna well for strong sales, solid earnings, and increased free cash flows going forward.
An investment in Magna is an investment in the auto industry. What do you expect the growth to be or the ongoing sales from the manufacturer?