Autoneum Holding: A Recovery Taking Place Under Wraps
Briefly, Autoneum is a company which is a leader in acoustic and thermal management solutions for motor vehicles. Its products are aimed at reducing fuel consumption, reducing pollution, thermal comforts in the cabin and treating noise at its source, i.e. the engine.
Autoneum has No. 1 or No. 2 spots in most of its product segments. Also, it has a good growth opportunity in India and China where it is expanding its business.
The investment case was based on the fact that the company was selling for a P/S ratio of less than 0.1, and even a 1% net margin will be enough to achieve a P/E ratio of 10. The companies in similar industries, e.g. Lear (LEA), Johnsons Control (JCI), Autoliv (ALV), etc., achieve on an average 3% net margin. This leaves a good amount of margin of safety.
The main risk as I observed in the last report was the balance sheet.
Let us tune into the new annual report and see where we stand.
Good progress all around. Autoneum also declared its first ever dividend of Sfr 0.65 per share.
We now have the balance sheet, which was lacking in 2012 when I wrote the report. Let us calculate the debt of the company.
|Item||Value (in Sfr mn)|
|Long term debt|
Subordinated shareholder loan
Short term debt
Other ST liability
On an EV/Sales ratio of 0.25, it does not look that cheap now.
The following is the debt profile of Autoneum.
It is good that the debt is down since 2012. Also, in 2011, on an EBIT basis the company looked less comfortable in servicing its debt (EBIT of Sfr 34.9 mn versus current debt of Sfr 83.1 million). This year the situation has improved. The current debt has gone down to Sfr 42.6 million, while the EBIT has gone up to Sfr 75.5 million.
I still don’t like the fact that most of the debt is due soon. From the report it is not clear when. It would have been helpful. All I know is that all of the Sfr 156 million debt is due sometime between one to five years from now.
This is not really a problem if the company had a way to make cash even when the markets are bad. The problem I see is that the company has equity of Sfr 302 million versus liabilities of Sfr 657.2 million. So, only 31% of the company is funded by the shareholders. This kind of leverage in a young company competing in a cut-throat market makes me uncomfortable. I also don't like that the management proposed to pay a dividend instead of reducing the leverage. This is a shortsighted move.
My verdict: pass.