Magna International is a global automotive supplier and one of the largest auto parts manufacturers in the world. It is a mobility technology company that is inventing new products and processes for the future. The company supplies systems and components to all major OEMs.

Magna International operates on five continents and in 28 countries. The company has a large network of 347 production centers and 84 product development, engineering and sales centers worldwide. North America is the largest market, accounting for nearly half of the company’s sales. Europe and Asia are the other main markets.

The most important segments of Magna International are Body Exteriors & Structures (40% sales), Power & Vision (31%), Seating Systems (~ 13%), Complete Vehicles (~ 18%) and Corporate & Other (-2%). The company has extensive vehicle engineering and manufacturing expertise and product capabilities. It also has electronic and software functions.

MG is also available as a double-listed stock trading under the MGA on the NYSE.

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Sales growth and market presence

Magna International manufactures all of the parts necessary to build complete vehicles, from seating systems to body exteriors, structures and powertrains. Magna’s world-class manufacturing, product and process innovations have enabled billions of dollars to be introduced each year in new vehicles. The company works with leading car brands such as Mercedes-Benz, BMW, Jaguar and Toyota, etc. and helps introduce unique features based on Magna technology.

With over six decades of experience in the auto industry, the company has become the preferred choice of customers. The comprehensive product competence, the complete vehicle development and the assembly of Magna support new cooperations and joint ventures for futuristic trends.

Some of the most recent are a joint venture with LG Electronics to manufacture electric motors and with HASCO Magna Electric Drive System Ltd. The company expects a return on sales of over 50% for LG JV in the next few years. Magna’s popularity can be measured by the fact that its products can be found in most vehicles today.

The company is a leader in all areas of future mobility, with a focus on electrification and autonomy. Futuristic trends such as lightweight, electrification, autonomy and intelligent mobility offer numerous growth opportunities.

The company is also expanding its presence in China, the world’s largest market for new vehicles. The company assumes that global light vehicle production will grow by an average of 6% per year from 2020 to 2023 and that sales will grow by an average of 10 to 12% per year during this period.

Because of its large geographic footprint, the company is well positioned to target all of the world’s major automakers. The global automotive supply business is valued at $ 1 trillion and Magna is in a good position to leverage its systems and complete vehicle knowledge to develop new business opportunities. COVID-19 has affected vehicle sales.

However, the company’s earnings in the second half of 2020 exceeded the second half of 2019. Global light vehicle production rose 18% year-over-year in the first quarter of 2021, driven by an 87% increase in China. Magna International expects future growth to be driven by the demand for lightweight solutions, Advanced Driver Assistance Systems (ADAS) and electrified products.

Dividends

Magna International is a Canadian dividend aristocrat who has grown its dividend growth to an impressive 22% annually over the past decade. The company recently increased its dividend by nearly 7.5%, which is more than 10 years of consecutive annual dividend increases.

Magna returned $ 280 million to shareholders through share buybacks of $ 150 million and dividends of $ 130 million. The company currently has a dividend yield of 1.78% and a reasonable payout ratio of 46%.

The company expects a 35% -40% and 10% -15% return on operating cash flow from share buybacks and dividends to shareholders. The company has estimated free cash flow of $ 1.6 billion to $ 1.8 billion in 2021 and $ 5.5 billion to $ 6 billion in 2021-2023.

Strong earnings and cash flow growth should enable the company to continue paying and increasing dividends going forward. The company has also identified annual structural cost savings of $ 200 million that are expected to be fully realized over the next several years.

The automaker continues to invest in areas of engineering that target megatrends, including electrification, autonomy and new mobility. The company invests in new technologies and innovative functions such as ADAS functions, autonomous functions such as valet park driver monitoring systems and 3D surround view, scalable powertrain variants, etc. World-class production facilities, an innovative product portfolio and an experienced management team are the strong competitive advantages of the company.

Magna International (MG) historical yield
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competition

The automotive supplier industry is highly competitive. Magna competes with traditional automotive suppliers and several established electronics and semiconductor companies that are expanding their presence in the automotive industry.

Magna competes with companies such as Linamar Corp., Martinrea International, Uni-Select Inc., Exco Technologies, Westport Fuel Systems, etc. As the only automotive supplier that builds complete vehicles, Magna has a strong competitive advantage over its competitors. The company is well positioned for a transition to electrification.

Bottom line

As one of the world’s largest and most advanced technology providers in the mobility sector, the company is at the forefront of the technological revolution in the automotive industry. A deep understanding of vehicle systems and a proven track record of technological advancement position Magna well for the future where electrification, autonomy and smart mobility are intertwined.

The company continues to expand its offerings, capabilities, and evolving business models and strategic partnerships to increase shareholder value. Investing in futuristic ideas positions Magna well for strong sales, solid profits and higher free cash flows in the future.

An investment in Magna is an investment in the auto industry. What do you expect from the manufacturer’s growth or ongoing sales?

MG against TSX against SP500
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Magna International (MG) historical pe
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