We have written about the research company that walks like an investment – and said avoid from – was it $40 down- despite the enthusiasm of Motley Fools- better to engage as a client of Jack A. Bass Managed funds is the lesson here.
COMPANY DESCRIPTION: Westport Innovations is a leading developer of technologies that allow engines to operate on gaseous fuels such as natural gas across light, medium, heavy and high horse power market applications.
Macro challenges keep share volatility high, while the company works to introduce engine platforms and book orders in ‘14. The recent follow-on offering helps alleviate cash issues near-term ($210.6M cash at year-end vs. burn of $26.9M in Q4). While we continue to favor the strategy (and the nat gas macro), risk/reward stays balanced. Investment highlights
Few changes this quarter, as Westport finishes a challenging 2013 and looks to transition from R&D phase to increased product adoption in 2014 (with heightened focus on cost optimization and prioritized investments goal of breakeven adjusted EBITDA for all three units by year-end).
The outlook for 2014 implies solid growth (~7-13%), despite a ~$25M headwind from discontinuation of first generation HPDI (as focus turns to roll-out of HPDI 2.0 and expectation of improved warranty accruals – work underway with several OEMs currently).
CWI and Weichai continue to grow nicely, with both JVs reporting record volumes for the year (2014 expected to benefit from ramp of ISX12G and build-out of additional capacity at Weichai). Early opportunities in rail/mining/marine also continue to progress nicely.
Our 2014 revenue/EPS estimates go to $184M/$(1.80) from $241M/$(1.90); F2015 is introduced at $300M/$(0.90).
Valuation Our $20 price target (from $28) is derived by applying a 4x multiple to our 2015 sales estimate of $300M
Ritchie Bros. Auctioneers is the world’s largest industrial equipment auctioneer. The company conducts auctions in more than 110 locations across the globe, including 44 auction sites in North America, Europe, the Middle East, Asia, and Australia. Auctions are 100% unreserved and consist of used and unused equipment that serves a wide variety of industries, such as agriculture, construction, forestry, mining, petroleum, and transportation.
All amounts in US$ unless otherwise noted.
We continue to rate RBA shares HOLD and reiterate our US$20.00 target price. We see a compelling long-term investment case given that RBA’s major capex spend is behind it and organic growth efforts to fill out resulting capacity could potentially result in material dividend upside. Valuation, however, keeps us neutral. Investment highlights
Peter Blake, RBA’s CEO : The US is where management sees the most room for improvement. While a number of issues are impacting US GAP growth, an untenured (less productive) US sales force is perhaps the biggest. Other geographies are more or less operating to plan. Management is increasingly looking to the rental companies as prospective sources of new GAP. Adding a former rental company executive to the Board in June was a nod in this direction.
Separately, RBA released Q3/13 GAP of $790 million (-7% y/y), below our $860 million estimate. On a LTM basis, GAP is down 6%, reflecting the sales force productivity and macro issues mentioned above. We cut our Q3/13 EPS estimate to $0.10 from $0.14 as we incorporate the lower than expected GAP and build in severance as part of some restructuring. Model changes & valuation
We take our 2013E EPS lower by 8% to $0.68, 2014E lower by 19% to $0.81, and introduce 2015E of $1.00. RBA trades at 25x 2014E, above the comps group trading at 19x. Increasing GAP and ROIC could potentially get us more constructive on RBA shares
Cooper Tire & Rubber’s fourth-quarter earnings fell 65% as the year-earlier period had a large taxbenefit, masking revenue growth and sharply higher margins as the company benefited from declining raw materials costs.
The company reported a profit of $73 million, or $1.15 a share, down from $209 million, or $3.33 a share, a year earlier while revenue increased 2.3% to $1.06 billion. Analysts had projected earnings of $0.85 on revenue of $1.03 billion.
Sales in the company’s North American segment, which provides the majority of revenue, grew 5.2% thanks to improved volume and higher prices. “A strong fourth quarter capped off a great year,” said Chief Executive Officer Roy Armes. “Due in large part to successful product launches and demand for our products, the company has increased unit volumes and outpaced the industry in our key markets for the full year.”
However, the company views 2013 with cautious optimism amid continued uncertainty about the economy. Cooper expects that raw material costs in the current quarter will be about the same as during the fourth quarter, which represented a 2% decrease from the third quarter. However, over the longer term raw material prices are expected to generally trend higher.
Magna is a one of the world’s largest and most diversified Tier 1 automotive components suppliers, active in 25 countries. The company also provides complete vehicle assembly services through its subsidiary, Magna Steyr.
BUY for attractive valuation, but growth looks limited
MGA has been a strong share price performer in 2012, in part due to nice EPS growth and more so from valuation expansion. We think the stock has more valuation expansion potential, although this may be limited by sector valuations. We believe EPS growth is set to slow.
Our forecast was increased in this report due to company specific adjustments, which contributed to the increase in our target price. We think the share price appreciation potential remains attractive assuming a relatively normal 5x EV/NTM EBITDA multiple. Our target is supported by our $68.42 DCF. Beat on Rest of World (ROW) EBIT; guidance raised
MGA reported EPS of $1.13, ahead of our $1.05 estimate and the consensus mean of $1.01. MGA’s 2012 sales guidance was stronger than we expected and we adjusted our Q4/12 forecast slightly higher.
After reviewing Q3/12 results and guidance and assessing trends, we boosted our sales forecast and North American and ROW margins.
Slowing EPS growth expected in next couple of years
We believe MGA is on track for solid double-digit EPS growth in 2012 from strong North American sales and improved European margins. We forecast high-single-digit annual EPS growth from 2012-14 due to slowing industry growth in North America and industry weakness in Europe. We expect these factors to limit sales growth and margin expansion.
Looks inexpensive, but normal valuation spread relative to the group
MGA’s valuation looks attractive relative to its historical multiples and DCF, but normal relative to the group. We think this suggests the potential for an upward bias in valuation, but the upside potential is probably limited by group valuation moves.
Shares of Westport Innovations jumped after the company reported their Q2/12 results. For the quarter, the
company reported consolidated revenues of $106.1 million compared with $44.9 million for the same period last year, an
increase of 136.3%.
Earnings were reported at a net loss of $6.1 million ($0.11 loss per share) compared with a net loss of $18.1
million ($0.38 loss per share) for the same period last year.
Breaking down its segments, WPT reported Westport Light-Duty (LD) revenue, which where up 182.2% to $30.7 million, Cummins Westport (CWI) revenue jumped 78.5% to $57.0 million with 1972 engines shipped, and Westport Heavy-Duty (HD) revenue was up 111.3% to $4.3 million with 75 systems shipped.
Service and other revenue was reported at $14.1 million.
CEO David Demers commented, “Key segments of the transport market have begun the inevitable shift from petroleum based fuel to engines powered by cleaner burning, low cost methane (natural gas), and Westport has a substantial presence in each market.” Demers also noted, “We are seeing strong growth in all segments and in all of our global markets, and despite challenging macroeconomic conditions, we expect this to accelerate as new infrastructure comes on stream over the next two years and as we launch new products, opening up significant new
Many aircraft manufacturers have used the Farnborough International Air Show (FIA), which will take place July 9-15, as a key venue to announce major orders. In the past, based on a decade or more of trading data both before and after the air show, some investors have purchased BBD shares in late June or early July before the run-up to the show and then sold the shares during the show.
BBD shares have tended to peak on approximately the second or third day of the show, as major aircraft orders typically have been announced by then, or investors have become increasingly concerned that large orders will fail to materialize. BBD shares have typically traded higher on average 9.1% in 10 of the last 15 years during the week before the air show and sold off every year following the show on average 8.1%. However, the average net change from five days before to five days after the show since 1997 is less than 0.5%, making no apparent long-term impact on the share price.
BBD held its Pre-Farnborough airshow briefing in late June, the company expects total business jet deliveries in 2012 to be roughly flat YoY with return to sustained growth in 2013. On commercial aircraft, there was a slight change versus prior year forecast and no change to CSeries total aircraft market of 6,900 (BBD expects a 50% market share). Europe is challenging, but emerging markets are still promising, and North America prospects have improved. Could Farnborough be a letdown?
How do you top the biggest business jet order in your history? Recently, NetJets, a private jet-sharing company owned by Warren Buffett‘s Berkshire Hathaway (BRK.A), said it would buy up to 425 new business jets from Bombardier and from U.S. planemaker Cessna Aircraft in a $9.6 billion deal to renew its North American and European fleets. BBD’s portion of the order is worth up to $7.3 billion and includes up to 275 of the company’s Challenger business aircraft (the transaction comprises 100 firm orders on two different types of Challenger jets, and options for 175 more).
BBD also signed a long-term service agreement with NetJets that could be worth an extra $2.3 billion if all of NetJets’ options on Bombardier aircraft are fully exercised. Farnborough holds its air show on even-numbered years in July, while Paris holds its airshow on odd-numbered years in June. Both Farnborough and Paris are important events for the aerospace industry, known particularly for the announcement of new developments and orders.
General Motors Stake
Warren Buffett’s Berkshire Hathaway acquired its largest stake in General Motors before the automaker plummeted Friday, as the billionaire chairman hands more responsibility to deputy stock pickers.
Berkshire accumulated about 8.47 million shares of GM through February 3 at an average price of $24.35, according to data compiled by Bloomberg. Omaha, Nebraska-based Berkshire’s full stake was reported in a separate regulatory filing in May that didn’t disclose the purchase price or date. Berkshire bought another 1.53 million GM shares through February 14 for an average of $25.46 each, the insurance filings showed.
Taken together, the holdings had lost an estimated $40 million in value from the drop in the stock, assuming no shares were sold. An analyst believes GM’s slump may provide Berkshire with another opportunity to buy shares in a company that could benefit as U.S. consumers replace aging cars. As Buffett tends to focus on the long-term development of the companies he invests in, analysts speculate that one quarter’s results would not be a cause of worry for him.
General Motors sees sales and pricing “clearly deteriorating” in Europe according to analysts who met with management last week.
CFO Dan Ammann and Treasurer James Davlin hosted the meeting with a group of analyst, with one stating that Europe’s vehicle pricing has “worsened significantly: over the past few months.
The analyst went on to say, “GM appears to expect a more substantial industry volume decline during this cycle…(the automaker) expects more substantial capacity reductions and by a broader group of automakers.”
Auto executives have a forecast that deliveries in Europe will fall by roughly 5% this year, the fifth consecutive year of decline. Last year, GM lost $747 million in Europe and earlier this month said it will be announcing a restructuring plan in the region.
Analysts speculate that GM will have to spend as much as $1 billion to revive its European operations. The analyst reports come shortly after GM announced a plan to pay $420 million for 7% of PSA Peugeot Citroen, Europe’s second largest automaker, a deal which was met with sceptism from analysts and investors. GM executives were unavailable to comment.
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