BorgWarner (NYSE: BWA) - one of the largest American manufacturers and suppliers of automotive components. The company's products include engine and exhaust management systems, ignition systems, starters and alternators and other parts. Production is established in 24 countries with a total of about 50 thousand.
About company
The company distinguishes the following main segments of its products.
Air management. Development and production of products to improve fuel economy, reduce emissions and increase productivity. Segment technologies include: turbochargers, eBoosters, eTurbos, synchronization systems, exhaust systems, thermal systems, gasoline ignition technology and so on. Share in the structure of revenue in 2020 year was 55,07%.
Electric motors and drives. These are rotating electrical components, power electronics, control modules, software, friction and mechanical products for automatic transmissions and for torque control. Share in the structure of revenue in 2020 year was 38,76%.
fuel injection. Development and production of components and injection systems for gasoline and diesel fuel. Share in the structure of revenue in 2020 year was 4,28%.
Secondary market. Sales of goods and services to individual customers and original equipment suppliers. Share in the structure of revenue in 2020 year was 1,79%.
Revenue structure in 2020 year, million dollars
| Revenue | Share in total revenue | |
|---|---|---|
| Air management | 5598 | 55,07% |
| Electric motors and drives | 3940 | 38,76% |
| fuel injection | 0,435 | 4,28% |
| Secondary market | 0,192 | 1,89% |
| Total | 10 165 | 100,00% |
Air management
Revenue
5598
Share in total revenue
55,07%
Electric motors and drives
Revenue
3940
Share in total revenue
38,76%
fuel injection
Revenue
0,435
Share in total revenue
4,28%
Secondary market
Revenue
0,192
Share in total revenue
1,89%
Revenue structure by regions, million dollars
| Revenue | Share in total revenue | |
|---|---|---|
| North America | 3057 | 30,07% |
| Europe | 3559 | 35,01% |
| Asia | 3411 | 33,56% |
| Other | 138 | 1,36% |
| Total | 10 165 | 100,00% |
North America
Revenue
3057
Share in total revenue
30,07%
Europe
Revenue
3559
Share in total revenue
35,01%
Asia
Revenue
3411
Share in total revenue
33,56%
Other
Revenue
138
Share in total revenue
1,36%
Financial indicators
BorgWarner has published financial statements for the complete 2020 year. Net sales of the company in 2020 year were 10,165 billion dollars and practically did not change compared to the results of the previous year. The company received additional sales after, acquired Delphi Technologies. But that growth has been offset by production disruptions due to the pandemic..
BorgWarner's revenue is evenly distributed across major global regions. Largest revenue segment in 2020 year - air control - 55,07%.
Operating profit decreased by 52,5% - to 618 USD million - due to the growth of other operating costs. BorgWarner contributed costs to this article, related to the restructuring of acquired companies. Operating margin decreased to 6,1% due to lower operating profit. The company's net profit decreased by 32,9% - to 500 million dollars. Free cash flow increased by 6,2% - to 743 mln - due to the growth of operating profit.
The company expects net sales to increase in 2021 year since 14,7 to 15,3 billion dollars, which corresponds to growth with 12 to 17%. Expected, that the operating margin will be in the range of 8,6 to 9,5%. EPS is projected to range from 3,23 to 3,77 $. free cash flow, As expected, will be from 800 to 900 million dollars.
Financial performance of the company, billion dollars
| Revenue | Operating profit | Operating margin | Net profit | free cash flow | |
|---|---|---|---|---|---|
| 2016 | 9,071 | 0,973 | 24,9% | 0,595 | 0,535 |
| 2017 | 9,799 | 1,072 | 10,9% | 0,439 | 0,620 |
| 2018 | 10,530 | 1,190 | 11,2% | 0, 930 | 0,580 |
| 2019 | 10,168 | 1,303 | 12,8% | 0,746 | 0,699 |
| 2020 | 10,165 | 0,618 | 6,1% | 0,500 | 0,743 |
Revenue
2016
9,071
2017
9,799
2018
10,530
2019
10,168
2020
10,165
Operating profit
2016
0,973
2017
1,072
2018
1,190
2019
1,303
2020
0,618
Operating margin
2016
24,9%
2017
10,9%
2018
11,2%
2019
12,8%
2020
6,1%
Net profit
2016
0,595
2017
0,439
2018
0, 930
2019
0,746
2020
0,500
free cash flow
2016
0,535
2017
0,620
2018
0,580
2019
0,699
2020
0,743
Balance sheet indicators
Assets grew by 65% year to year - before 16,02 billion. The company's capital grew by 38% by increasing BorgWarner's total share capital from 4,84 to 6,72 billion. The increase in assets is associated with the absorption of other companies, and capital - with an additional issue of shares.
Balance sheet indicators, billion dollars
| Assets | Capital | |
|---|---|---|
| 2016 | 8,835 | 3,301 |
| 2017 | 9,788 | 3,825 |
| 2018 | 10,095 | 5,718 |
| 2019 | 9,702 | 4,844 |
| 2020 | 16,029 | 6,724 |
Assets
2016
8,835
2017
9,788
2018
10,095
2019
9,702
2020
16,029
Capital
2016
3,301
2017
3,825
2018
5,718
2019
4,844
2020
6,724
Debt load
The total debt of the company increased by 93,2%: with 1,96 to 3,78 billion dollars. IN 2020 year before the acquisition of Delphi Technologies to refinance current debt, the company issued bonds in the amount of 1,35 billion. Weighted average interest rate for all outstanding debt at the end 2020 of the year - 2,8%. The peak of payments on the company's debt obligations falls on dates after 2025 of the year - 1,7 billion dollars. The growth of the debt burden is also associated with active acquisitions of companies. Growth does not look critical, as the capital of the company has grown, so the debt-to-equity ratio rose slightly.
Debt load, billion dollars
| Total debt | net debt | |
|---|---|---|
| 2016 | 2,220 | 1,776 |
| 2017 | 2,188 | 1,643 |
| 2018 | 2,114 | 1,375 |
| 2019 | 1,960 | 1,128 |
| 2020 | 3,787 | 2,137 |
Total debt
2016
2,220
2017
2,188
2018
2,114
2019
1,960
2020
3,787
net debt
2016
1,776
2017
1,643
2018
1,375
2019
1,128
2020
2,137
Market
IN 2020 year more 50% of the company's revenue came from the Air Control segment. IN 2019 year, the market for automotive turbochargers exceeded 16 billion, And, Estimated, it will grow on average by 7% in a period of 2020 on 2026 year. Automakers strive to increase engine power and fuel economy, therefore, they are actively introducing turbochargers.
Despite its historical specialization in internal combustion engines, BorgWarner keeps pace with new market trends - the transition to electric motors. It makes perfect sense: according to forecasts, the volume of the global electric vehicle market will grow from 4 to 34,7 million units to 2030 year at an average annual growth rate 26,8%. But already this year, manufacturers of electric vehicles are faced with a shortage of semiconductors due to logistical failures., and this may slow down the growth of the electric car market.
According to the company's plans, the share of revenue from electric vehicles should grow to 45% from general to 2030 year - and now it is less 3%. For this purpose, the company acquired in 2019 Romeo Power, a manufacturer of lithium-ion battery modules and kits for commercial electric vehicles. 1 October 2020 of the year BorgWarner completes acquisition of Delphi Technologies - manufacturer of electrification products and software. IN 2021 the company acquired Akaso, a manufacturer of battery systems for buses, commercial vehicles, rail vehicles.
Comparison with competitors
As a comparison, we chose: Lear, Gentex, Autoliv, Dress. The revenue growth rate will show us, how successful the company is in its market and whether its services are in demand. The return on equity ratio shows the financial return on the use of the company's capital and allows you to evaluate the quality of the work of financial managers. BorgWarner is the leader in terms of revenue growth for 5 years and ROE.
Comparison with competitors, billion dollars
| Revenue growth rate | ROE | Revenue in 2016 | Revenue in 2020 | |
|---|---|---|---|---|
| BorgWarner | 2,3% | 8,98% | 9,071 | 10,165 |
| Lear | −1,69% | 3,6% | 18,557 | 17,045 |
| Gentex | 0,12% | 17,56% | 1,678 | 1,688 |
| Autoliv | −1,23% | 8,27% | 7,921 | 7,447 |
| Dress | −4,2% | −1,29% | 0,316 | 0,255 |
Revenue growth rate
BorgWarner
2,3%
Lear
−1,69%
Gentex
0,12%
Autoliv
−1,23%
Dress
−4,2%
ROE
BorgWarner
8,98%
Lear
3,6%
Gentex
17,56%
Autoliv
8,27%
Dress
−1,29%
Revenue in 2016
BorgWarner
9,071
Lear
18,557
Gentex
1,678
Autoliv
7,921
Dress
0,316
Revenue in 2020
BorgWarner
10,165
Lear
17,045
Gentex
1,688
Autoliv
7,447
Dress
0,255
Dividends and buyback program
BorgWarner dividend yield based on results 2020 was 1,76%. The average return over a five-year period was 3,57%, and the dividend growth rate is 5,11%.
At the beginning 2020 of the year, the company's board of directors approved a billion dollar buyback program over three years. For 2020 year the company bought back shares for 216 million, hence, She will redeem the rest of the program in the current or next year..
Companies in the auto parts industry do not have high dividend yields, but this is offset by an increased beta coefficient - stocks in this sector grow faster than the market index.
Comparison of dividend yield with competitors
| Dividend yield | Buyback Yield | Total return | |
|---|---|---|---|
| BorgWarner | 1,76% | — | 1,76% |
| Lear | 1,11% | 0,99% | 2,10% |
| Gentex | 1,4% | 3,38% | 4,78% |
| Autoliv | 1,35% | — | 1,35% |
| Dress | — | 0,46% | 0,46% |
Dividend yield
BorgWarner
1,76%
Lear
1,11%
Gentex
1,4%
Autoliv
1,35%
Dress
—
Buyback Yield
BorgWarner
—
Lear
0,99%
Gentex
3,38%
Autoliv
—
Dress
0,46%
Total return
BorgWarner
1,76%
Lear
2,10%
Gentex
4,78%
Autoliv
1,35%
Dress
0,46%
Company multipliers
BorgWarner group multiples in most cases indicate a discount in the share price compared to peers. This allows the company to be considered for purchase at current levels..
Assessing the upside potential of a stock versus its competitors
| P / E | P / BV | P / S | EV / EBITDA | |
|---|---|---|---|---|
| BorgWarner | 21,95 | 1,94 | 0,91 | 7,32 |
| Lear | 88,35 | 2,23 | 0,58 | 13,52 |
| Gentex | 27,81 | 4,36 | 5,20 | 17,35 |
| Autoliv | 52,33 | 3,83 | 1,13 | 14,95 |
| Dress | 44,84 | 8,83 | 1,28 | 30,83 |
| Mean | 47,056 | 4,238 | 1,82 | 16,79 |
| BorgWarner shares upside potential | 114% | 118% | 100% | 129% |
P / E
BorgWarner
21,95
Lear
88,35
Gentex
27,81
Autoliv
52,33
Dress
44,84
Mean
47,056
BorgWarner shares upside potential
114%
P / BV
BorgWarner
1,94
Lear
2,23
Gentex
4,36
Autoliv
3,83
Dress
8,83
Mean
4,238
BorgWarner shares upside potential
118%
P / S
BorgWarner
0,91
Lear
0,58
Gentex
5,20
Autoliv
1,13
Dress
1,28
Mean
1,82
BorgWarner shares upside potential
100%
EV / EBITDA
BorgWarner
7,32
Lear
13,52
Gentex
17,35
Autoliv
14,95
Dress
30,83
Mean
16,79
BorgWarner shares upside potential
129%
What's the bottom line?
You can say, that BorgWarner is in the process of transforming its operations: moves from components for internal combustion engines to electric motors. The potential of this market is ensured by the significant growth of the electric vehicle industry in the world..
The company's key performance indicators were affected by the pandemic and rising costs, related to the acquisition of other companies. In spite of this, the company feels confident, which is confirmed by good performance indicators in comparison with competitors. Stocks look attractive to add to medium and long term portfolios.
