Trade and taxes in fo­cus for Cana­dian auto part sup­pli­ers

The Peterborough Examiner - - BUSINESS - JONATHAN RAT­NER

Higher auto pro­duc­tion in all key re­gions points to a healthy round of earn­ings when Canada’s three auto sup­pli­ers start to re­port quar­terly re­sults on Feb. 24, but in­vestors may be more in­ter­ested in what the com­pa­nies have to say.

With light ve­hi­cle sales in the U.S. com­ing in at a sea­son­ally ad­justed an­nual rate of 18.1 mil­lion in the fourth quar­ter, ex­ceed­ing the pace of 17.4 mil­lion for the first nine months of 2016, in­vestors re­main con­cerned about the North Amer­i­can auto cy­cle hit­ting a peak.

How­ever, RBC Cap­i­tal Mar­kets an­a­lyst Steve Arthur noted that th­ese wor­ries have sub­sided in re­cent months, as in­vestors buy into a “stronger for longer” the­sis.

In­stead, un­cer­tainty about trade and tax­a­tion in the U.S. has moved to the fore­front, which is partly why Cana­dian sup­pli­ers have un­der­per­formed their U.S. peers since the end of Q3.

“We will look for com­men­tary from each of the sup­pli­ers sur­round­ing their cross bor­der trade and the po­ten­tial im­pli­ca­tions of a bor­der ad­justed tax in the U.S.,” Arthur told clients.

The an­a­lyst con­tin­ues to pre­fer Magna In­ter­na­tional Inc. among the Cana­dian auto parts mak­ers, high­light­ing its on­go­ing growth, dis­counted val­u­a­tion, and the like li­hood of a 10 per cent-plus div­i­dend in­crease.

He is fore­cast­ing a 7.3 per cent year-over-year rev­enue in­crease, with EBITDA up 14.4 per cent on op­er­at­ing lever­age and op­er­at­ing per­for­mance.

Lina­mar Corp’s growth is ex­pected to be driven by new busi­ness launches and con­tri­bu­tions from M&A, al­though cus­tomer shut­downs dur­ing Q4 will likely cut into the gains.

Arthur will be watch­ing for the com­pany’s out­look on its Sky­jack di­vi­sion, as well as com­men­tary about U.S. tax and trade is­sues.

Mean­while, Mart­in­rea In­ter­na­tional Inc. is fore­cast to see an EBITDA boost of just 0.6 per cent in Q4, as in­dus­try growth is off­set by North Amer­i­can cus­tomer plant shut­downs and the roll off of busi­ness in Europe.

HANDOUT PHOTO

Magna In­ter­na­tional Inc. a Cana­dian auto parts maker, has been noted for its on­go­ing growth, dis­counted val­u­a­tion, and the like­li­hood of a 10 per cent-plus div­i­dend in­crease by RBC An­a­lyst Steve Arthur.

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