Hard to believe that a year ago this was an $80 stock. What a disaster. Started off as a straightforward margin expansion story; now it’s a complicated turnaround and levered equity. YFAI, the growth engine in China, has been impaired (after backing out the impairment, doesn’t look like contribution from Chinese JVs has grown over the last 2 years). There’s been another $1.2B of restructuring charges besides that. Company owned EBITDA has fallen by over $400M over the last 2 years. It looks like most of that decline, $300M, has come from the SS&M, the biz that makes seat structures for complete seat systems for Adient and third parties. By comparison, Adient’s seating segment (makes complete seating systems) hasn’t done so bad, down by just $73M compared to 2 years ago. Lot of things have led to these crappy results…higher steel prices, steel shortages, higher transportation costs, operational stumbles in the face of a large number of new programs, soft auto production numbers in China.
The company is now trying to turn things around. The old CEO was canned. They are simplifying the supply chain, outsourcing fxns that used to be vertically integrated, improving in-plant productivity, putting more management resources around the most promising program launches, etc. Apparently the company specific challenges are not widespread and can be tied back to “a handful” of plants and launches. The company’s core competitive position seems as strong as it was before. It is the largest player in an oligopoly (5 players have 80% of the market), with 33% share, 50% larger than the #2 player. It is also generating positive free cash flow ($140M), with capex coming down in the in the next few years. At 2.3x, the co. has breathing room against the renegotiated 4.5x covenant.
Call me a sucker, but damn this stock looks cheap. With the stock at $16, the enterprise value is $4.2B. The JVs have delivered $380M to after-tax income in Fiscal 18. 7x earnings = $2.7B. PF enterprise value is $1.6B. Company owned EBIT is $425M, so < 4x.
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