Each quarter, we select a specific sector from our coverage and dive into the numbers to demonstrate how Cognitive Credit can be used to inform high-level analysis of a sector, quickly and easily. In our second Sector in Focus piece we look at the Automobiles & Auto Components Industry Group within the Consumer Discretionary sector, according to the MSCI GICS system.
Why the Autos sector?
The Automobiles & Auto Components Industry Group (L2) has faced and continues to face significant uncertainty marked by supply chain disruptions, sharp rise in energy and commodity prices, higher-than-expected inflation and interest rates, and potential for slowdown in economic growth across developed and emerging market economies.
As described in the name, the Group is split into two main Industries, Automobile Manufacturers and their respective suppliers, the Auto Components makers.
Fundamentals Screen
EBIT Margin Chg (bps), YoY
Due to the capital intensive nature of the Auto sector, in combination with the difference in accounting treatment of R&D costs between US GAAP (expensed) and IFRS (capitalization for development costs), operating profit (EBIT) tends to be the closely watched financial metric.
Looking at the Automobiles sector (L3), a chart of EBIT on a interim basis shows that Margin has generally recovered from Covid troughs:
On an LTM view, the EBIT Margin change (bps) YoY highlights performance worth investigating for McLaren:
McLaren
The McLaren 2026 Senior Secured Notes have widened considerably over the last 18 months (STW has more than doubled from tights of 450bps in November 2021), perhaps a reflection of the LTM EBIT margin performance seen above:
In terms of framing the current situation to discern if a potential opportunity exists, the Metrics section of the McLaren model reveals the most likely culprit for the EBIT decline.
On an LTM basis Gross Margin has been deteriorating since 2Q22, save for the recent uplift in the latest quarter.
A cursory read of the FY23 Financial Report explains the LTM Gross Margin decline as a function of both lower volumes and price mix against a flat cost of sales versus 2022. The Company also states that both FY23 and 22 COS were inflated due to various production delays, investment in quality and supply chain cost inflation.
Text Search
Supply chain disruption and input cost inflation were well covered themes throughout and immediately following Covid, especially in the Automobile Manufacturers space.
Using Text Search and two terms - “semiconductors” and “supply chains” as proxies for each theme, helps determine a high level indication of how they may or may not be abating as we have passed thru the FY23 reporting period.
In FY23, JLR specifically mentions an improvement in the semiconductor supply picture, a distinct change from the prior two fiscal years:
Filtering for Automobile Manufacturers in FY22 documents returns the following results, ie over 500 hits for “supply chain” and 288 results across 46 Companies for “semiconductor”:
While still topical, the same search filtered for FY23 documents, returns 319 hits across 18 Companies and 121 results across only 32 companies for each term “supply chain” and “semiconductor”, respectively.
Winnebago
Returning to the Company Comparables page, given that we are at the tail end of another reporting period, it’s instructive to look at simple Revenue YoY% on an Interim basis, i.e. for the reporting period just passed.
As the worst performer on a YoY basis, it's worth looking thru Winnebago's credit metrics. Iterating thru the credit metric columns with the Charting functionality set to “Time series” highlights some weak performance on a quarterly basis -
Winnebago Revenue has been soft for a few quarters, moderating to (20%) from YoY declines of greater than 30%.
Meanwhile EBITDA margin erosion is pronounced:
In conjunction with a build-up of Inventory days:
The KPI section of the Financials model in turn also shows this build-up in the Dealer inventory network:
Despite the aforementioned top line and margin challenges, STW has remained tight inside of 200 bps, most likely owing to fairly defensive free cash measures and relatively low leverage:
Market Screen
From a Market Screen perspective, the Cognitive Credit Comparables page holds over 21k line items - bonds and loans - across over 1700+ issuers.
Employing a short duration screen for the Autos & Components Industry Group - bonds maturing before 31 Dec 2025, sorted by Yield to Worst in Descending Order - reveals a few short duration carry bonds, as well as an unsurprising outlier - CCC+ rated Superior Industries note - at the top of the list.
A simple yield curve (YTW) also illustrates the point:
Clicking into the Superior Industries link thru the Comparables page and Searching for ‘2025’ in the Superior’s Description page returns a result that points to a typical springing maturity for the Term Loan and RCF Facilities in 91 days prior to the June 15, 2025 maturity:
Recent FCF has been weak and some fairly innocuous forecasting assumptions - an improvement in revenue decline at the expense of small gross margin compression - show Superior’s Adjusted net leverage potentially growing quickly over the next few quarters:
With circa 1 year to maturity, a market screen plus cursory analysis of the name warrants continuing to monitor it for potential difficulties in addressing the maturity or participating in the future refinancing.
Sector analysis has never been more convenient
Cross-market analysis like the above is easy with Cognitive Credit. Our Comparables feature offers a top-down view of all our fundamental data across our four coverage universes (European & US High Yield, and European & US Investment Grade), allowing you to find relative value opportunities across your markets, sectors and companies quickly and conveniently.
To see our Comparables feature in action, request your demo today.