Mungerish Posted June 20, 2017 Share Posted June 20, 2017 Nice summary of the idea here in the piece on Kingstown http://www8.gsb.columbia.edu/valueinvesting/sites/valueinvesting/files/Graham%20%20Doddsville_Issue%2029_small_0.pdf Thesis seems to be playing out as advertised and might be getting another chance to grab a bite of the apple here with BAC peak car sales call last week. Original spinoff rationale seems solid and managements margin expansion plan is working well in the short term. Wondering if anyone that has experience in the auto parts sector can make a bear case as to why this is not worth at least 10X 2019 estimates of $11+? Link to comment Share on other sites More sharing options...
nkp007 Posted September 15, 2017 Share Posted September 15, 2017 Invested in late 2016. Cash generative business. Spun-off but quickly paid down some debt, instituted a dividend, and buying back shares. Business was starved for capex under Johnson Controls so focus is now on growth via increased capex. Long-term, auto seats have tailwind due to more "content" per seat as well as China growth. Adient has strong position in China via a number of cash-flowing JVs. Assuming EPS of ~$10, company at $40, $50, $60, $70, etc seems reasonably priced. Main concern is peak SAAR. But even if they can stay constant and have Asia growth counterbalance North America shrink, you have a good return on current earnings. If they're able to grow via new capex, growth in China, increased content per seat, then should be valued at more than 8x earnings. The company is also engaging in many self-help internal improvements to increase margins by 200 BPs, which should bring even more cash to the bottom line. Listen to management conference calls. Very good insight into business. Strong management that now has freedom to operate company as a stand-alone business vs. cash cow for Johnson Controls. Impressed by their actions on intelligent growth, capital allocation, and being opportunistic (e.g. recent acquisition @ reasonable multiple to increase revenue + enhance foothold in California for new generation of vehicles). Link to comment Share on other sites More sharing options...
walkie518 Posted May 18, 2018 Share Posted May 18, 2018 there hasn't been a post on this topic for some time...nor a material discussion but I figured I'd add the following: https://www.sec.gov/Archives/edgar/data/1325256/000090266418002345/p18-1178sc13da.htm Blue Harbour appears to be keeping its 7% stake in the business adding Peter Carlin to Adient's board The stock is certainly getting beat up recently falling from a high in the mid-80s to $56/sh today...might be a good time to start this thread back up? Link to comment Share on other sites More sharing options...
chesko182 Posted December 28, 2018 Share Posted December 28, 2018 Wanna bring back this one given it trades at 2-3X forward PE, depending on your estimates. At this level, it trades as if bankruptcy was a realistic possibility. I don't think this is the case given that leverage is not that high (2.3X debt to EBITDA) and now imminent large maturities coming due in the next two years. Company has faced execution headwinds in some of their segments, specifically seating structures and mechanisms, related to new product launch inefficiencies and headwinds from higher commodity costs. I would think this headwinds are temporary and can be solved. On top of that margins could normalize and there could be room from further expansion which was the original thesis post-spinoff. With margin expansion and multiple normalizing I don't see how this trades back to $80 or somewhere in that neighborhood. In any case it seems that margin of safety is pretty high here, assuming liquidity and debt is not a problem, which in my opinion is not a concern; and management can fix the temporary operational headwinds. Link to comment Share on other sites More sharing options...
topofeaturellc Posted December 28, 2018 Share Posted December 28, 2018 They problem isn't the current leverage and liquidity, it's the margin of safety in even a mild downturn. Also IIRC you need to pay attention to where the cash is. If it doesn't require a large recap it is undoubtedly very cheap where youve got the self inflicted pain and the cycle. Link to comment Share on other sites More sharing options...
kab60 Posted December 28, 2018 Share Posted December 28, 2018 They problem isn't the current leverage and liquidity, it's the margin of safety in even a mild downturn. Also IIRC you need to pay attention to where the cash is. If it doesn't require a large recap it is undoubtedly very cheap where youve got the self inflicted pain and the cycle. I believe they just amended their covenants, so I'm not sure I'd say current leverage isn't a problem. I agree this could be cheap (I've followed since the spin), but leverage is high, cashflow is anemic and then you have operationel issues, new management while we're probably pretty late in the cycle. It's becoming somewhat of an equity stub, so upside is potentially high, but the whole space is cheap. Basically I think the risk reward is bad, when one can go with well run players with less leverage. Link to comment Share on other sites More sharing options...
pcm983 Posted December 28, 2018 Share Posted December 28, 2018 bankruptcy very much so is a realistic possibility - lear went bk last cycle and is a superior business. depending on what you think downturn looks like it's not hard to see it happening for adnt Link to comment Share on other sites More sharing options...
chesko182 Posted December 28, 2018 Share Posted December 28, 2018 I believe Lear's bankruptcy was much more tied to their GM exposure and they were fucked once GM went under... ADNT has very diversified revenue by OEM, with VW being their largest at 15% or something like that. I also think leverage is lower than what Lear had back then. I am obviously assuming SAAR doesn't collapse from here, maybe a milder downturn to 14-15mm vs. 17 currently and the geographic exposure should help. bankruptcy very much so is a realistic possibility - lear went bk last cycle and is a superior business. depending on what you think downturn looks like it's not hard to see it happening for adnt Link to comment Share on other sites More sharing options...
pcm983 Posted December 28, 2018 Share Posted December 28, 2018 geographic exposure is terrible for them - they are 50% China business and China SAAR fell off a cliff. btw good luck getting that cash out of those JV's Link to comment Share on other sites More sharing options...
porcupine Posted December 28, 2018 Share Posted December 28, 2018 The Kingstown guys have significantly reduced their exposure to this. Perhaps it hasn't played out like they had planned. Link to comment Share on other sites More sharing options...
topofeaturellc Posted December 28, 2018 Share Posted December 28, 2018 Lear's bankruptcy was linked to management being paid to file. GMs bankruptcy was actually good for suppliers as they were told by the usg to pay their suppliers in distress see AXL where GM post reorg basically rescued them. Link to comment Share on other sites More sharing options...
handycap5 Posted January 2, 2019 Share Posted January 2, 2019 Can you expand on the comment that Lear's management was paid to go bankrupt? I found the article linked below, but was hoping you could provide a little more background or a good source to read. Thanks! https://www.crainsdetroit.com/article/20090721/FREE/907219972/lear-corp-bankruptcy-trustee-objects-to-bonus-payments Link to comment Share on other sites More sharing options...
topofeaturellc Posted January 2, 2019 Share Posted January 2, 2019 Lear management owned sufficiently small amounts of equity that the fulcrum security holders were able to make the economics of a ch11 filing favorable for management. You can look at the size of the equity grants to see that. You can also look at how many companies exit ch11 with net cash balance sheets. Not many. Management enriched themselves and handed the company from the equity holders to the debt holders. Link to comment Share on other sites More sharing options...
Spekulatius Posted January 16, 2019 Share Posted January 16, 2019 Discussing the capital structure is not what you want to hear as a shareholder: https://www.prnewswire.com/news-releases/adient-announces-preliminary-q1-fiscal-2019-results-initiates-discussions-to-strengthen-capital-structure-300779024.html Link to comment Share on other sites More sharing options...
walkie518 Posted January 16, 2019 Share Posted January 16, 2019 stewardship is certainly in question here... Link to comment Share on other sites More sharing options...
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