Brad Dunkley Long Linamar: Capitalize For Kids Conference 2016 ~ market folly

Monday, October 31, 2016

Brad Dunkley Long Linamar: Capitalize For Kids Conference 2016

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Brad Dunkley of Waratah Capital who pitched a long of Linamar (LNR.TO).

Brad Dunkley's Capitalize For Kids Presentation 2016

•    Linamar makes engine parts, camshafts and transmissions. They have industry leading margins, and ROEs. They also have a construction equipment division, only 14% of sales.

•    Most of it revenues are the power train division which manufactures engine parts. Approximately 70% of revenues from North America and its mainly from the big 3 U.S. OEMs.

•    Linda, who is the daughter of the founder and has been running the company since its IPO and has established a very strong record: since 1986, stock price CAGR of over 16%.

•    Linamar does have a lost cost production, plants are mainly in Canada, lower healthcare costs, no unionized labour and lower CAD currently helps.

•    The alternative for customers is to manufacture these parts internally.

•    Believes market perception that peak SAAR will hurt Linamar is incorrect. Since 1996, SAAR has increased by a CAGR of 1% while Linamar has realized financial performance of 12% CAGR (revenue, EBIT, EPS, etc). Doesn’t believe SAAR will crash like the market is expecting (estimate 8% to 10% from peak levels). Thinks electric vehicle threat is overdone, only 1% of market in 2020.

•    The company has also does a good job of growing content per car (growing in Europe, NA and Asia).

•    Thinks ride-sharing economy will increase miles driven and lower the life of vehicle (current vehicle have an average life of 11yrs). All positives for Linamar going forward.

•    At ~5x earnings, don’t need to be worried of the terminal value of the company.

Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference

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