The following article was sent to subscribers of Trifecta Stocks at 11:03 a.m. ET.
Canadian auto-parts manufacturer Magna (MGA), which is a Trifecta Stocks holding, is now wrapping up its 8:30 a.m. ET call on the announced $1.9 billion acquisition of privately held transmission systems supplier, Getrag Group.
Here are a few key takeaways from the call.
Getrag is the world's largest OEM-independent supplier of automotive transmissions. The company holds a strong position in the dual-clutch transmission segment -- a fast-growing market in Asia and Europe -- and the manual transmission segment. It also has a strong presence in the hybridized dual clutch transmission segment. Getrag's DTC and hybrid transmission segments are expected to outpace the market.
The company generates 34% of sales in Asia, 37% in Germany, 24% in the rest of Europe and 5% in North America. Revenue is expected to rise from 3 billion euros in 2014 to 6 billion euros in 2019, fueled by strong growth in China and Europe. The firm has strong ties to domestic and international original equipment manufacturers in China, and Chinese clients accounted for 8% of sales in 2014. That figure is expected to rise to around 33% of sales by 2019.
The acquisition should add to Magna's earnings in 2016 (excluding amortization) and 2017, and should have no impact on the company's share buyback and additional acquisition plans for 2015.
Magna paid around 8.8x EBITDA for Getrag: Magna currently trades at roughly 6.8X. According to management, the growth profile was well worth the price, factoring in synergies of 10% and additional revenues expected from new business lines.
Although the deal was not cheap, we believe this provides a growth engine for the Canadian firm. We see upside to this deal, and remain bullish on Magna.
Bryan Ashenberg is the fundamental analyst for Trifecta Stocks. Test drive with a free trial.