Author Topic: LNR.TO - Linamar Corporation  (Read 4697 times)

kab60

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Re: LNR.TO - Linamar Corporation
« Reply #10 on: August 25, 2018, 10:18:46 AM »
Is this the top? I don't know. Economy seems to chuck a long nicely. I agree we're probably (very?) late cycle, but in 18 months they might've earned 1/4 of their market cap and gotten leverage down to 1xebitda. Even if we have a recession tomorrow and they lose money - and have a couple of years with margins cut in half - I still don't think it looks expensive. Obviously they need to survive, but again, they don't rely exclusively on auto.

Again, thanks a bunch for the pushback.

What nags me a bit is having read Capital Returns where one message - that makes sense intuitively - is to buy cyclicals when they look expensive - not when they look cheap. But it seems like a lot of people have abandoned the space already in anticipation of a major crash.
« Last Edit: August 25, 2018, 10:22:40 AM by kab60 »


topofeaturellc

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Re: LNR.TO - Linamar Corporation
« Reply #11 on: August 25, 2018, 11:18:03 AM »
I think thatís totally fair if not the decision I would make.  I think if you want to buy something over-earning you need to be comfortable with what a stress scenario does to the cap structure and be really honest with yourself about what likely scenarios will shake you out from doubling down if real pain does hit.

I love the classic marathon capital cycle stuff but I think itís important to remember itís not just buy cyclicals in pain, itís buy them when capital is exiting the sector, ie D>capex

rb

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Re: LNR.TO - Linamar Corporation
« Reply #12 on: August 25, 2018, 05:30:58 PM »
Linamar is indeed a fine company. I don't own any because I have to hold a large position in Magna, so auto parts manufacturers out of scope. But after taking a quick look today I may actually buy some.

Basically if you mention anything to with autos, someone will scream cycle, cyclicals, top of the cycle or something to that effect. But nobody seems to be talking about valuation for some reason.  ???

So basically with Linamar you have a company that is well run. A large shareholder who's interests are aligned with the plebs and hasn't been making mistakes. Supposing we're at the top of a cycle, earnings growth peak-to-peak has been 17.5% per year and ROE (though to peak) over the cycle has been 15%. This company is trading at 6x PE and basically book value. Most businesses are cyclical and they're not trading anywhere close to 6 PE. plus we don't actually know if we're at a cycle peak or if the cycle is over.

Let's talk a bit about the cycle. The US vehicle flee is about 268 million and the average age is 11.7 years. In 2017 there were about 17.25 million vehicles sold in the US. That implies an average vehicle replacement age of 15.5 years. I know that vehicles have been getting better, but 15.5 is a quite a lot and well in excess of the average age of the fleet. So at 17 million units a year it doesn't seem like we're in a crazy, frothy part of the cycle and we're about to fall off a cliff.

But for the sake of the argument let's assume that 17 million is a peak? What should be a normal run rate for autos? 15 million units for an average replacement age of 17.9 years? At that point what would be the valuation for Linamar?  9 or 10x PE? What's really wrong with 9 or 10 PE?

UK

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Re: LNR.TO - Linamar Corporation
« Reply #13 on: August 25, 2018, 10:49:20 PM »
Re buybacks and capital allocation: they are not buying back shares, but so far LNR has succeeded to reinvest in business/acquisitions and to keep ROE constant/growing, while also diversifying, at least somewhat, from the auto disruption threats. Also LNR bought back ~5 M shares for ~65 M CAD in 2008 and Hasenfratzs between them (mostly by current CEO) increased their ownership by ~4.6 M shares (from ~25 to 33 per cent of the company) in that year. In my wildest dream for this company, in their next acquisition, they just have to go after the aerospace field:)))

« Last Edit: August 25, 2018, 11:27:01 PM by UK »