Author Topic: LNR.TO - Linamar Corporation  (Read 15182 times)

mikazo

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LNR.TO - Linamar Corporation
« on: January 28, 2016, 06:06:15 PM »
"Linamar Corporation is a Canada-based diversified manufacturing company of engineered products powering vehicles, motion, work and lives. The Company operates through two segments: the Powertrain/Driveline segment and the Industrial segment. The segments are further divided into three operating groups: Machining & Assembly, Forging, and Skyjack. The Company's Machining & Assembly and Forging operating groups focus on precision metallic components, modules and systems for engine, transmission and driveline systems designed for vehicle and industrial markets. The Company's Skyjack operating group is noted for its mobile industrial equipment, notably its aerial work platforms and tele handlers."

I've been considering initiating a position in Linamar for a couple months now. Since I started looking into it, the stock price has fallen ~27%.

Here are the reasons for my interest in Linamar:

  • Consistent growth in revenue/net income/retained earnings/free cash flow over the past several years
  • Lots of growth in gross profit margin over the past several years
  • Consistent reduction in SG&A expenses over the past several years
  • Growing Return on Assets, 11% in 2014
  • Growing Return on Equity, 19% in 2014
  • Consistent reduction in debt-to-equity ratio over the past several years
  • Strong and growing market share for SkyJack scissor lifts - (saw this myself on some construction sites near me)
  • Strong insider ownership by CEO and her family, they consider it a family business
  • Auto industry regulations are pushing for better fuel economy, which can be driven by lighter-weight aluminum parts manufactured by Linamar
  • Recently acquired an aluminum foundry in France (Montupet) http://www.montupet.fr/english/about-us/
  • More construction/infrastructure work to be announced with the new Liberal government in Canada, could drive more sales of SkyJack equipment - not a strong reason, but it's a factor
  • P/E of ~9 as of this writing

I don't know much about the auto industry or its supply chain, so I would really appreciate any additional thoughts. I'm also not 100% sure why it's this cheap.
« Last Edit: January 28, 2016, 06:08:52 PM by mikazo »


kab60

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Re: LNR.TO - Linamar Corporation
« Reply #1 on: June 29, 2016, 11:57:38 AM »
I've also been checking this Company out lately. It seems to have been hammered along with the rest of the auto industry, but it does seem like a much nicer business as it actually generates quiet alot of cash. I suppose fear of auto sales being at a peak might explain some of the weakness, and I think it's worth investigating the margins as well. Operating margin averaged around 6 pct. back in 2006-2012 (we did have a recession, and it actually did okay), but it's almost twice as high today. I think it's necessary to figure out what's driving that. Any idea (maybe lower energy/commodity prices?)

kab60

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Re: LNR.TO - Linamar Corporation
« Reply #2 on: September 17, 2016, 12:52:03 PM »
Surprised there is no more interest. + 20% ROE, seems to take marketshare, run like a family business (very high inside ownership), low turnover among staff, P/E 7, growth, lots of FCF considering it's a growing industrial company. Decent amount of debt so focused management/deleverage. Could gain from infrastruture boom if politicians decide to go that route instead of QE. Margins/ROE a fair bit above historical levels, I suppose that's the tricky part to figure out.

Spekulatius

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Re: LNR.TO - Linamar Corporation
« Reply #3 on: September 17, 2016, 03:48:46 PM »
I've also been checking this Company out lately. It seems to have been hammered along with the rest of the auto industry, but it does seem like a much nicer business as it actually generates quiet alot of cash. I suppose fear of auto sales being at a peak might explain some of the weakness, and I think it's worth investigating the margins as well. Operating margin averaged around 6 pct. back in 2006-2012 (we did have a recession, and it actually did okay), but it's almost twice as high today. I think it's necessary to figure out what's driving that. Any idea (maybe lower energy/commodity prices?)

I think the lower CAD may help with the margins, but I am not sure. THis company looks pretty good and cheap too, considering the numbers that they are generating. Car suppliers are highly cyclical, so that is definitely a concern. I need to understand their competitive edge better to make an informed decision about the stock.
To be a realist, one has to believe in miracles.

kab60

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Re: LNR.TO - Linamar Corporation
« Reply #4 on: August 24, 2018, 02:07:41 AM »
I bought a large chunk last night. It's trading at a P/E of some 6,5, below book value while it's growing nicely and sporting a ROE above 20. I find management very impressive. They seem to have both a short, medium as well as long term vision for the Company.

They recently bought MacDon, that makes equipment for the agriculture industry and even though it has pushed leverage up somewhat, this Company spits out quiet a bit of cash, so they expect to delever quickly. The acquisition makes the Company less dependent on the auto cycle, and even though the price does seem fair, I believe it will turn out quiet nicely. MacDon was family run, and it seems like they picked Linamar (over say PE) due to their history of operating with a long term vision and more as a family/founder-led than public Company.

For anyone interested I recommend the annual shareholders letters (even though the constant use of exclamation marks annoys me!): http://www.linamar.com/sites/default/files/reports/2017%20Annual%20Report%20-%20FINAL.pdf

Tariffs on auto car parts could be a big slap in the face (since they apparently cross the border some 7 times) and so could a major slowdown in SAAR, but there's quiet a bit of lead time for their parts, and they've already booked revenue of some $8.5 - $9 b in 2021 (versus $6,5b in 2017).

Needless to say, I think the risks are more than priced in, and the industrial segment - while cyclical (agriculture and scissor lifts) - gives some diversification (and should demand a bigger multiple).

If one is afraid of EV's I think the shareholder letters give a bit of comfort - they're already taking more than their fair share of orders.

I'd love any input, because I think the setup looks almost too good to be true. My main concerns are weak capital allocation and empire building, but history seems very solid (Scyjack, bought 15 years ago, is something like a 20-30 bagger probably, and I like the reasoning behind both Montupet and MacDon as well). I also hate that it's listed in Canada, so share buybacks are a PITY compared to the US.

« Last Edit: August 24, 2018, 02:10:07 AM by kab60 »

topofeaturellc

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Re: LNR.TO - Linamar Corporation
« Reply #5 on: August 24, 2018, 06:16:14 PM »
Seriously? It's marginal auto production capacity at the top of the cycle? That's why it seems too good to be true.  You might eventually get paid but it'll either be because you gutted out a cycle or Saar takes forever to roll and you get multiple expansion before then.  It's not an easy story.

kab60

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Re: LNR.TO - Linamar Corporation
« Reply #6 on: August 24, 2018, 10:21:49 PM »
Half of their operating earnings in Q2 had nothing to do with auto, and they're trading cheaper than their US peers. Even with falling auto volumes in NA their revenue is growing nicely due to increased content per car. As I wrote, they already have some 8,5-9B of business booked for 2021. Not sure one needs multiple expansion. 18 months and they'll have delevered from the MacDon acquisition and they're on the way to earn 9/share this year vs expected 10 and 11 in 19/20. Two smart 1b acquisitions in two years without issuing a share. I think I understand the risk, and I think it seems very much priced in.

topofeaturellc

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Re: LNR.TO - Linamar Corporation
« Reply #7 on: August 25, 2018, 05:00:34 AM »
You said it was an easy set up. I'm just telling you it's not.  SAAR can roll before it delevers, those backlogs can disappear real fast, and long term there is a pretty viable existential issue for the parts business given they are marginal capacity in components whose demand is structurally impaired by EVs.  And Management's arguments on that last topic are a little tough to buy, especially if you think about their customers own economics and desire for economies of scale.

kab60

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Re: LNR.TO - Linamar Corporation
« Reply #8 on: August 25, 2018, 08:46:11 AM »
Thanks for the input. Sorry if I seemed dismissive, I really appreciate the pushback. Can't say I have a good handle on how they'll fare in a big downturn, but they managed to handle the GFC nicely while car makers got creamed. Next time they'll be more diversified so that's a plus, but Montupet might have increased fixed costs. Management might be BS'ing, but according to them the future has never looked brighter. Wouldn't give it any consideration if they didn't own 20 pct.
« Last Edit: August 25, 2018, 10:08:10 AM by kab60 »

topofeaturellc

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Re: LNR.TO - Linamar Corporation
« Reply #9 on: August 25, 2018, 09:52:47 AM »
They benefited a lot in the last downturn from being the best capitalized in the parts space.  They donít have that advantage this time around.  Still well run company, all that.  Just donít quite get the appeal of parts at the top of the cycle