Bottom Feeding - MG.TSX, LTHM.AIM, and D.UN.TSX
A look at an automotive industry supplier, timber product distributor, and office REIT.
We're back to the usual schedule this week, with three new company profiles: two Canadian, one British, and all trading near 52 week lows.
Magna International (MG.TSX)
MG designs, engineers, and manufactures everything from individual components to full vehicles for automotive original equipment manufacturers (OEMs) worldwide.
In the year ended 31 Dec 2024, it generated total revenues of $42.836bn (FY23: $42.797bn), gross profit of $5.799bn (FY23: $5.612bn), operating profit of $2.116bn (FY23: $2.038bn), and net profit of $1.009bn (FY23: $1.213bn).
Total equity at 31 Dec 2024 was $11.522bn (FY23: $11.884bn), of which $8.110bn was tangible (FY23: $8.241bn), and the company had net debt including lease liabilities of $5.821bn (FY23: $6.025bn).
MG generated net cash flows from operations of $3.634bn (FY23: $3.149bn), and invested a net $2.592bn into predominantly fixed assets additions (FY23: $4.503bn). Free cash flow was $1.380bn (FY23: $0.555bn), which it used to pay out $0.539bn in dividends (FY23: $0.522bn), alongside $0.207bn in share repurchases (FY23: $0.013bn).
Market capitalisation: CAD 12.87bn ($9.34bn)
Valuation: Using the FY24 figures, the shares currently offer a 10.8% earnings yield, 14.8% free cash flow yield, 5.8% dividend yield, 8.0% shareholder yield (dividends + share repurchases), and trade at 1.2x tangible book value.
Reason: Negative outlook for automotive sector, particularly around the impact of tariffs, and disruption from Chinese EV manufacturers.
Interest level: Moderate - Valuation is reasonably attractive and the company seems to have faired better than the legacy auto-makers it serves in recent years.
James Latham (LTHM.AIM)
LTHM is an independent trade distributor of timber, panels and decorative surfaces to the UK, Ireland, and internationally.
In the year ended 31 Mar 2024, it generated total revenue of £366.514m (FY23: £408.370m), gross profit of £62.099m (FY23: £80.009m), operating profit of £26.143m (FY23: £43.698m), and net profit of £22.661m (FY23: £35.918m).
Total equity at 31 Mar 2024 was £215.230m (FY23: £195.575m), almost entirely tangible, and the company had net cash including lease liabilities of £66.618m (FY23: £56.008m).
LTHM generated net cash flows from operations of £23.572m (FY23: £34.933m), and invested a net £5.528m in purchases of property, plant and equipment (FY23: £3.232m). Free cash flow was £20.347m (FY23: £30.952m), which it used to pay £7.348m in dividends (FY23: £6.825m).
Market capitalisation: £210.67m
Valuation: Using the FY24 figures, the shares currently offer a 10.8% earnings yield, 9.7% free cash flow yield, 3.5% dividend yield, and trade at 1.0x book value.
Reason: Challenging market conditions that are impacting the near-term profit outlook.
Interest level: High - Seems like a good opportunity to pick up a high quality company, tracing its history back to 1757, at an attractive price.
Dream Office Real Estate Investment Trust (D.UN.TSX)
D.UN is an unincorporated, open-ended real estate investment trust (REIT) that owns a portfolio of commercial office properties, primarily in downtown Toronto.
In the year ended 31 Dec 2024, it generated total revenue of CAD 196.114m (FY23: CAD 190.448m), gross profit of CAD 106.133m (FY23: CAD 102.335m), and a net loss of CAD (104.934)m (FY23: CAD (77.196)m), largely attributable to asset value write-downs.
Total equity at 31 Dec 2024 was CAD 1,080.523m (FY23: CAD 1,200.311m), and the company had net debt of CAD 1,358.233m (FY23: CAD 1,326.188m).
D.UN generated funds from operations (FFO) of CAD 58.058m (FY23: CAD 64.518m), and paid out CAD 19.048m in distributions to unit holders (FY23: CAD 39.070m).
Market capitalisation: CAD 260.42m
Valuation: Using the FY24 figures, the shares currently offer a (40.3)% earnings yield, 22.3% FFO yield, 7.5% dividend yield, and trade at 0.24x book value.
Reason: Occupancy has been falling y-o-y while interest expense has been rising. Market is evidently pricing in a continuation of this trend, resulting in further asset write-downs and/or a default.
Interest level: Moderate - Shares could be cheap if you have confidence occupancy will hit a floor, and the debt burden can be reduced to a sustainable level, either through repayments or falling interest rates.
Well that concludes this week's newsletter. If you own, or have studied any of the companies profiled, please share any additional insights you might have in the comments. See you next week for some more bottom feeding.