Outcomes 2020 years for BorgWarner: falling profits and new acquisitions

BorgWarner (NYSE: BWA) - one of the largest American manufacturers and suppliers of automotive components. The company's products include engine and exhaust gas 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 control. Design and manufacture of products to improve fuel economy, reducing emissions and increasing 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 systems for gasoline and diesel fuel injection. 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 control 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 control

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 region, million dollars

Revenue Share in total revenue
North America 3057 30,07%
Europe 3559 35,01%
Asia 3411 33,56%
Others 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%

Others

Revenue
138

Share in total revenue
1,36%

Financial performance

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 this growth was offset by production disruptions due to the pandemic..

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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 acquisition 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%: from 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. Debt growth is also associated with active takeover activities. Growth doesn't look critical, as the capital of the company has also grown, therefore, the debt-to-equity ratio has grown slightly.

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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% since 2020 by 2026 year. Automakers aim to improve 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, electric vehicle manufacturers are facing a semiconductor shortage due to logistical disruptions., and this can 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 assess the quality of 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 year was 1,76%. The average return over a five-year period was 3,57%, and the growth rate of dividends is 5,11%.

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At the beginning 2020 of the year, the company's board of directors approved a billion dollar buyback program over three years. behind 2020 year the company bought back shares for 216 million, hence, the rest of the program she will buy in the current or next year.

Auto parts companies do not have high dividend yields, but this is offset by an increased beta coefficient - the shares of this sector are growing faster than the market index.

Comparison of dividend yield with competitors

Dividend Yield Buyback yield Total profitability
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 profitability

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 buying at current levels..

Assessing the upside potential of stocks versus 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 is the bottom line

You can say, that BorgWarner is in the midst of a business transformation: moves from components for internal combustion engines to electric motors. The potential of this market is provided by the significant growth of the electric vehicle industry in the world..

The company's key 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.

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