The world's leading airbag manufacturer walks a tightrope
ALV
By Justin Emerson
The world's number one in automotive safety has an unusual profile in the OEM sector.
Despite its overwhelming domination of its business segments - almost half the market share in airbags, seatbelts and steering wheels - this company isn't really the most popular among investors really like the company, as clearly demonstrated by the stagnation of its share price over the last decade.
It's true that the American-Swedish group's gross margin has eroded significantly over the period, a victim of the ever-intensifying cost-cutting requirements imposed on it by the major automakers; and that the financial and commercial bankruptcy of its main competitor, Japan's Takata, ultimately benefited it only modestly.
The latter, in fact, highlighted the fragility of a model highly exposed to possible quality failure. This is without even mentioning the difficulties faced by automakers - Stellantis, the Renault-Nissan-Mitsubishi alliance and Volkswagen together account for a third of consolidated sales; Japanese automakers another third - or the threats of customs duties raised by the new US executive, among other perils.
However, Autoliv is not suffering from a structural lack of investor interest. Over the long term, the group's valuation multiples - hovering around twenty times earnings and two to three times equity value - are far more glowing than those afflicting automotive suppliers as a whole.
Peers like Forvia or Continental couldn't come close to such preferential treatment. However, neither would be in a position to match the financial performance of Autoliv, whose return on equity averages 15% without significant leverage.
Barring any unexpected upheaval, analysts are aiming high for the coming years, with earnings per share exceeding $9 in 2025, $11 in 2026, and $12 in 2027. While history may serve as a guide - sales and operating profit growth since 2015 have, on the whole, remained very timid - these expectations should be greeted with caution.
This, of course, is not the position of the group's shareholder, activist fund Cevian. At Cevian's instigation, Autoliv embarked on an aggressive $1bn share buyback program twenty-four months ago, at a time when the group's valuation was evolving at around x6.5 EBITDA.
points out that historically, Autoliv's average valuation has hovered around x7.5 EBITDA, and that it has consistently hit a ceiling of x9 EBITDA. It is therefore to be hoped that the profit growth projections highlighted by the analysts who follow the group are not fanciful...
Justin Emerson