Back in December of 2011, I wrote about a new holding ( read here ) Magna International ( MG.TO), a Canadian based auto parts company. Having just finished reading the 2012 Annual Report and the Q1, 2013 results, I'm raising the intrinsic value of MG. My original work suggested MG was worth $55/share, but business at MG is booming, even beyond management's expectations. Over the past year MG has worked to improve their struggling European operations and continue to build-out South American and Asian plant capacity. MG is now running 313 manufacturing/assembly and engineering facilities. MG is truly a great Canadian multi-national. They are seeing strength in Eastern Europe, ( which they now fold into the "Europe" category, as opposed to East and Western Europe ) Asia and North America. MG has raised their outlook for North America to 15.9 million units ( way up from close to 12 million at the end of 2010 ) and Europe to 18.4 million units ( up from 13 million ). Management has also indicated that they will back away, a little, from having so much cash on the balance sheet. They have indicated that returns to shareholders will increase, via dividends ( just raised to $1.28/share ) and share buy backs. In fact, if MG does take on a little debt to grow, the market might even give MG a higher multiple. What's clear is: MG is enjoying tailwinds that will likely persist through 2014.
I'm usually hesitant to re-value a cyclical company like MG much higher than my initial work. However, in this case I'm comfortable ( and was too conservative ) with a new intrinsic value for MG of $78-82. I'll take comfort in that MG is still trading cheaper than almost any of it's competitors. The average North American parts supplier ( BWA, JCI, TRW, LEA, DLPH) is trading at 13X. MG trades at 10X.
So now what? I will continue to hold MG. If you want to own MG, don't dive right in, MG has been performing very well lately. Wait for a pullback - there is sure to be one. But don't ask me when - I have no idea.