LNR.TO - Linamar Corporation

[RadMan24]

Take a look at John Deere, etc, for a perspective of the ag side. The auto side has rebounded, but of course there will be bumps. The Ag outlook is completely different now than it was fall 19, imo

[kab60]

Take a look at John Deere, etc, for a perspective of the ag side. The auto side has rebounded, but of course there will be bumps. The Ag outlook is completely different now than it was fall 19, imo

Sure the outlook for AG is better, but it's a small part of the business and 2020 results and 2021 (estimates) are much lower than at the beginning of 2020 (Industrials down almost 50 pct. in 2020). But it's nothing specific to Linamar, auto OEMS and other auto parts suppliers are also higher than before covid19. Perhaps it's the nature of some cyclical businesses, that a lot of investors buy when things are trending in the right direction - despite absolute levels being lower. Or (flying and electrical) cars have suddenly become hot.

[kab60]

Q4 out:

 

"Free  cash  flow was  $422.3 million  for Q4 2020  and  when  combined  with previous  quarters is now $1,185.0 million for  2020,  a Company record."

 

This thing traded down to like 1,2x2020 FCF in March.

 

I think the most interesting thing is continued share gains from MacDon. We could get to a point where all three segments hit on all cylinders if infrastructure spending goes up. Some of the rental companies, the Skyjack customers, cut back capex to preserve cash, but that'll come back eventually:

 

"Strong Transportation market share gains with Content per Vehicle growth in North America and Asia Pacific;and•Continued market share gains for MacDon internationally, notably in Europe where sales almost doubled for 2020 over the prior year"

 

 

[RadMan24]

Q4 out:

 

"Free  cash  flow was  $422.3 million  for Q4 2020  and  when  combined  with previous  quarters is now $1,185.0 million for  2020,  a Company record."

 

This thing traded down to like 1,2x2020 FCF in March.

 

I think the most interesting thing is continued share gains from MacDon. We could get to a point where all three segments hit on all cylinders if infrastructure spending goes up. Some of the rental companies, the Skyjack customers, cut back capex to preserve cash, but that'll come back eventually:

 

"Strong Transportation market share gains with Content per Vehicle growth in North America and Asia Pacific;and•Continued market share gains for MacDon internationally, notably in Europe where sales almost doubled for 2020 over the prior year"

 

That's quite impressive.

[kab60]

One obviously has to keep in mind that FCF is boosted by releasing WC, sales of AR's etc., so the real earnings power is closer to net income, which is significantly lower.

 

But it goes to show how resilient and adaptable the business is. I think they've been winning due to their decentralized structure, which makes them very quick to changing conditions in what is otherwise a somewhat asset heavy business.  They've been able to swiftly release WC, take cost out and dial down capex massively.

 

It's interesting you could buy this thing in 2018-2019 for down to 36/share - a marketcap of some 2,5b - due to temporary headwinds like a GM strike, Chinese tariffs and a fear of peak auto. Then a pandemic hits, and the Company doubles, as they've paid down some 1,2b in debt in a little over a year. Eventually cash flows and valuation do matter if management is sensible in their allocation of said capital. According to the conference call they're seeing a lot of M&A opportunities, and net debt is now down to less than 0,5xdepressed ebitda, so they have a lot of firepower. It also seems like they have a lot of opportunities on the EV/BEV side of things, and according to management there are no stranded costs, as they can just retool their existing equipment. I haven't sold a share and have a 15 pct. position. I thought it was a much easier buy at 40 due to all the pessimism, but with the cash they're churning out and headwinds lifting and perhaps tailwinds coming I'm just gonna let it do its thing.

 

[doc75]

One obviously has to keep in mind that FCF is boosted by releasing WC, sales of AR's etc., so the real earnings power is closer to net income, which is significantly lower.

 

But it goes to show how resilient and adaptable the business is. I think they've been winning due to their decentralized structure, which makes them very quick to changing conditions in what is otherwise a somewhat asset heavy business.  They've been able to swiftly release WC, take cost out and dial down capex massively.

 

It's interesting you could buy this thing in 2018-2019 for down to 36/share - a marketcap of some 2,5b - due to temporary headwinds like a GM strike, Chinese tariffs and a fear of peak auto. Then a pandemic hits, and the Company doubles, as they've paid down some 1,2b in debt in a little over a year. Eventually cash flows and valuation do matter if management is sensible in their allocation of said capital. According to the conference call they're seeing a lot of M&A opportunities, and net debt is now down to less than 0,5xdepressed ebitda, so they have a lot of firepower. It also seems like they have a lot of opportunities on the EV/BEV side of things, and according to management there are no stranded costs, as they can just retool their existing equipment. I haven't sold a share and have a 15 pct. position. I thought it was a much easier buy at 40 due to all the pessimism, but with the cash they're churning out and headwinds lifting and perhaps tailwinds coming I'm just gonna let it do its thing.

 

Well done!  I've been enjoying reading your posts while sucking my thumb... :)

[kab60]

Q1 results out, looking good. 1/3 of new automotive orders is EV/BEV. Earnings more than doubled. Market share gains in AG and Industrials and continued growth in content per vehicle in auto. Thought they'd consume cash, but they're still gushing it out.HODL

During the firstquarter of 2021(“Q12021”), the Company experienced strong sales growth, up15% vs Q1 2020, and outstandingnormalized net earnings growth, up 2.3 timesin comparison tolast year;•Strong normalized operating earnings growth in both segments;•Mobility segment normalized operating earnings up nearly 2.5timesfor Q1 2021 and Industrial segment normalized operating earningsup nearly 1.5times;•Free cash flow1was $166.2million for Q12021compared to $147.1 million for the first quarter of 2020(“Q1 2020”);

https://www.linamar.com/sites/default/files/press/Q1 2021 Press Release.pdf

 

 

[jfan]

Dropped into the Linamar agm. A few notes to share:

1) semiconductor shortage will hopefully resolve 2021 year-end

2) no contract renegotiation with existing customers last year

3) MacDon acquisition is fully integrated

4) Looking towards further debt reduction this year as a use of cash flow

5) little takeover business available last year, possibly due to significant governmental support, unlike 2009 which didn't

6) Acquisitions likely to target mobility electrification, infrastructure, or ability to extend global reach

7) will continue to support the Thornhill life-support product at a low level given the product complexity but all the ventilator product line will stop. No opportunity to expand here

8- seeing significant labor shortage, commodity (steel) price inflation, shipping costs increased 3x

9) able to cut significant amount of costs last year, looking to continue digitizing their factories

[kab60]

I really like how flexible they are, planting small seeds, taking calculated risks, decentralized ops. But, they could improve capital allocation. Doubt they find better acquisitions than their own shares. 

[RadMan24]

On 5/28/2021 at 3:42 PM, kab60 said:

I really like how flexible they are, planting small seeds, taking calculated risks, decentralized ops. But, they could improve capital allocation. Doubt they find better acquisitions than their own shares. 

Capital allocation has been good. Debt management has been excellent, its a conservative business. Will help a lot if/when rates rise to steer of inflation. MacDon should do well, farmers might have a cash hoard this year if things play out well.