Post by
Dibah420 on Nov 05, 2021 5:47pm
MGA: P.Sklar, BMO
MGA NYSE USD
November 5, 2021 | 12:08 ET | 12:08 ET~ Magna International MGA-NYSE MG-TSX Rating Outperform Price: Nov-4 $83.91 Target $97.00 Total Rtn 18% Q3/21 Results in Line; Semiconductor Issue Expected to Be Resolved in 2H/22 Bottom Line: Magna reported Q3/21 adjusted EPS of US$0.56, above BMO's estimate of US$0.52. During the quarter, the company experienced elevated pressures from the ongoing global semiconductor shortage as well as inflationary cost increases in production inputs including freight, commodities, labor and energy. However, management noted that Q3/21 was likely the trough, and expect tailwinds such as strong auto demand and low dealer inventories to help drive strong production as supply chain issues ease. Management also expects production to return a more normalized level in 2H/22. Key Points On November 5, Magna reported Q3/21 adjusted EPS of US$0.56, above BMO's estimate of US$0.52. During the quarter, the company experienced elevated pressures from the ongoing global semiconductor shortage as well as inflationary cost increases in production inputs including freight, commodities, labor and energy. However, management noted that Q3/21 was likely the trough, and expects tailwinds such as strong auto demand and low dealer inventories to help drive strong production as supply chain issues ease. Management also noted that it expects production to return a more normalized level in 2H/22. We note that Magna recorded a US$45mm provision on engineering service contracts with Evergrande's automotive unit during the quarter, which negatively affected earnings by about 10 cents per share. Magna reiterated its 2021 guidance, which was revised earlier in October. Revenue for FY2021 is expected to be US$35.4B to US$36.4B; EBIT margin is expected to be 5.1% to 5.4%; net income attributable to Magna is expected to be US$1.35B to US$1.45B, which implies an EPS range of US$4.46-US$4.79, in-line with BMO's estimate of US$4.79. Magna renewed its NCIB to purchase up to 29.9m of its common shares, which represents approximately 10% of the public float—in line with Magna's existing NCIB allowing it to purchase 29.6m common shares, representing 10% of the public float. Under its existing NCIB, Magna has repurchased a total of 2.9m common shares during the nine months ended September 30, 2021. We believe the modest purchases under the current bid are due to black-outs related to the pursuit of Veoneer and hesitancy given the negative impact on cash flow from the semiconductor shortage. We continue to rate Magna Outperform with a target price of $97 (unchanged), based on an enterprise value that is about 7x our revised FY2022 EBITDA estimate. Key Changes Estimates Q4 / 21E 2021E 2022E Revenue $9,375 $36,507 $38,787 Previous $8,975 $35,682 $38,691 EBITDA $798 $3,477 $4,036 Previous $807 $3,482 $4,221 EPS $0.97 $4.79 $6.43 Previous $1.02 $4.80 $6.6