CT Automotive Group PLC share price, company news, analysis and interviews
CT Automotive Group PLC (LON:CTA) designs, develops and manufactures automotive interior finishes and complex kinematic assemblies for the most well-known automotive brands on the planet.
CT Automotive is focused on delivering the very best products through utilisation of cost-effective and advanced control measures.
CT Automotive (CTA) interim results presentation – September 2022
Manufacturing
CT Automotive have a strong and reputable presence in the automotive tooling world, but are also a company that embraces further growth.
Every day, they take active steps to ensure they are progressing and remain finely in tune with their industry surroundings.
Tooling
CT Automotive’s in house tool manufacturing division based within the Shenzhen plant gives them the advantage of total control over the tooling manufacturing phases that ensure only the best quality tooling is manufactured on time and with precision accuracy to the given program milestones.
Component Maturation
The extensive vertical integration at CT Automotive means they now have all the core processes and resources in place at their technical centres to fast-track maturation. Any engineering change requests regarding product development can be accounted for easily and effectively. Their engineers engage in a variety of crucial tasks and perform a wide array of duties.
Product Validation
At CT Automotive, they want every single customer to be completely satisfied, that is why they put so much effort into product validation and go to great lengths to ensure all items are validated to the highest possible standards. They strive for excellence at every stage, which means only the highest quality fully validated products are sold and shipped.
CT Automotive Group plc (LON:CTA) has issued a trading update, announcing its return to profit in FY23 and expecting revenue of not less than $140 million. The group’s balance sheet has also strengthened, and it enters FY24 with strong order volumes and visibility of future revenue.
CT Automotive (LON:CTA), a leading designer, developer and supplier of interior components to the global automotive industry, today announced its results for the half year ended 30 June 2023 (“H1 2023”).
Simon Phillips, Chief Executive Officer of CT Automotive, commented:
“We are pleased with our first half performance. We drove strong revenue growth, returned to profitability and strengthened our balance sheet. Production volumes at the Group’s facilities have recovered rapidly and we are making good progress with our margin enhancement initiatives.
CT Automotive is well-positioned to capitalise on the continued recovery in global automotive end-markets and our improved operating environment. Whilst cognisant of the macroeconomic uncertainty, the Board remains confident of meeting full year expectations.”
Financial highlights
H1 23
RestatedH1 22
$m
$m
Revenue
68.2
54.2
Gross profit
17.8
10.5
Underlying EBITDA*
6.7
(4.6)
Underlying profit/(loss) before taxation*
2.5
(8.4)
Profit/(loss) before taxation
1.3
(9.0)
Earnings/(loss) per share
1.7c
(15.2)c
Net debt
9.0
20.2
* Adjusted for non-underlying items as explained in Notes 4 and 13of the condensed consolidated financial statements
Note: H1 2023 and H1 2022 are presented as continuing operations excluding UK discontinued operations. H1 2022 has been restated for prior period adjustments as explained in Note 15of the condensed consolidated financial statements
· Encouraging trading performance in H1 2023 as global production volumes recovered and automotive supply chain issues eased
· Revenues for H1 2023 ahead of the Board’s expectations up 26% at $68.2m
· Production revenue up 26% at $65.8m, reflecting the improved trading environment
· Tooling revenue expected to be second-half weighted reflecting the timing of customer projects, with strong visibility on projects due to complete in H2 2023
· Gross profit margins up to 26% (H1 2022: 19%), driven by a combination of higher revenue, stable production schedules, restructuring and efficiency initiatives
· Balance sheet strengthened following the fundraising of $9.6m in May 2023
Operational highlights
· Efficiency initiatives in China and Türkiye progressing as planned and are expected to deliver additional savings in H2 2023, further improving operating margins
· Impact of hyperinflation in Türkiye partially offset by improved pricing and cost escalation system implemented with key customers
· Performance of our new facility in Mexico is on track, with the plant generating $4.8m revenue during H1 2023
· Improvement in Group distribution and logistics recovered as supply chains and container rates normalised
Current trading and outlook
· We are encouraged by stabilising order volumes, pricing and inventory patterns since the start of FY23 and entered H2 2023 with good visibility
· Notable increase in customer Requests For Quotes towards the end of H1 2023, resulting in 5 new production program wins in Q3 to date worth a total annual production turnover of $9.4m and tooling business awards of $6.9m
· While macroeconomic uncertainty remains, there are continued signs that customer schedules are strengthening as original equipment manufacturers’ (OEMs) automotive supply chain issues are continuing to improve
· The Board remains confident of underlying margin run rate progression in H2 2023, supported by continued benefits expected from the Group’s efficiency initiatives
· As a result, the Board is confident in achieving its expectations for FY23
CT Automotive is engaged in the design, development and manufacture of bespoke automotive interior finishes (for example, dashboard panels and fascia finishes) and kinematic assemblies (for example, air registers, arm rests, deployable cup holders and storage systems), as well as their associated tooling, for the world’s leading automotive original equipment suppliers (“OEMs”) and global Tier One manufacturers.
The Group is headquartered in the UK with a low cost manufacturing footprint. Key production facilities are located in Shenzhen and Ganzhou, China complemented by additional manufacturing facilities in Mexico, Türkiye and Czechia.
CT Automotive’s operating model enables it to pursue a price leadership strategy, supplying high quality parts to customers at a lower overall landed cost than competitors. This has helped the Group build a high-quality portfolio of OEM customers, both directly and via Tier One suppliers including Forvia and Marelli. End customers include volume manufacturers, such as Nissan and Ford, and luxury car brands such as Bentley and Lamborghini. In addition, the Group supplies electric car manufacturers, including Lucid. It is also working with e.Go Mobile, a German manufacturer which plans to launch a series of small electric vehicles for the budget end of the market.
The Group currently supplies component part types to over 47 different models for 19 OEMs. Since its formation, the Group has been the only significant new entrant into the market, which is characterised by high barriers to entry.
Use of alternative performance measures
The commentary uses alternative performance measures, which are described as “Underlying”. An explanation of the items identified as non-underlying and that have been adjusted can be found in Notes 4 and 13 of the condensed consolidated financial statements. Non-underlying items are items which due to their one-off, non-trading and non-recurring nature, have been separately classified by the Directors in order to draw them to the attention of the reader and allow for a greater understanding of the operating performance of the Group.
Strategic and Operational Review
Positive trading performance
The Group’s trading performance in the first half of the year has been encouraging as global production volumes continued to recover and automotive supply chain issues eased.
Q1 2023 was characterised by low tendering activity as large OEMs began re-evaluating their post Covid strategies, in particular regarding their EV platforms. There was a notable increase in customer Requests For Quotes towards the end of H1 2023. This resulted in 5 new production program wins in Q3 to date with a total production annualised turnover of $9.4m and tooling business awards of $6.9m.
Revenues for H1 2023 were ahead of the Board’s expectations at $68.2m, made up of $65.8m of production revenue (H1 2022: $52.3m) and $2.3m of tooling revenue (H1 2022: $1.9m). This was up 26% on a continuing basis compared to H1 2022 ($54.2m, excluding discontinued UK revenue of $3.0m).
Our tooling revenue is generated from the design and development of new programs, with 5 projects completing during H1 2023, generating $2.3m of tooling revenue (H1 2022: $1.9m). Our internal toolroom is fully utilised and ensures maximum product control and margins. Tooling revenue is expected to be weighted towards the second half this year reflecting the timing of customers’ product launches and start of production. Currently, 11 projects are underway and are due to complete in H2 2023 with an expected revenue of c.$8-10m.
Gross margins have continued to improve and reached 26% (H1 2022: 19%) as the Group’s ongoing efficiency initiatives in China and Türkiye progressed as planned. China represents 70% of our global production volumes and consequently remains the main focus of our margin improvement initiatives. These initiatives include the restructuring of tooling operations and manufacturing footprint, supplier and logistics rationalisation, as well as automation initiatives which are on track for H2 2023 implementation and will deliver further savings. As part of restructuring our manufacturing footprint, we are continuing to gradually consolidate some of our production lines in China to Ganzhou, benefitting from comparatively lower labour costs. We remain on track to deliver the margin improvement plan across the second half of 2023, with automation being a key driver.
The economic environment in Türkiye has continued to be impacted by hyperinflation. An improved pricing and cost escalation system with key customers, aimed at compensating for local inflation and the devaluation of the Turkish Lira, has been effective in protecting local operations.
The new production facility in Mexico, which we opened in late 2022 to support our North American customers, has performed as planned, generating $4.8m revenue during H1 2023. Further growth is expected as the factory continues to scale up with new project launches scheduled for Q1 2024.
Strengthened balance sheet to support growth initiatives
On 27 April 2023, we were pleased to announce the result of a placing, which secured c.$9.6m of gross proceeds from new and existing shareholders.
The net proceeds of the fundraise are being primarily used to strengthen the balance sheet and to provide the Group with the flexibility to take advantage of new pipeline opportunities as the business positions itself for further growth. A small portion of the net proceeds will be used to facilitate further efficiency savings, including through investment in injection moulding production processes and robotics.
At the half-year end the net debt reduced to $9.0m (30 June 2022: $20.2m; 31 December 2022: $12.2m).
People
Our performance during this period of recovery and efficiency initiatives would not have been possible without the dedication, enthusiasm and expertise of our people. They are critical to the continued evolution of the business.
We continue to invest in our systems and processes to ensure our people are safe, empowered and have sufficient opportunities to develop their careers while supporting the Group’s long-term goals.
Board changes
A number of important changes to the Board structure and roles were made in H1 2023 to support the business.
We were pleased to appoint Anna Brown as CFO at the end of April 2023. Anna has substantial listed company and financial experience, and has made an immediate impact as we continue to improve governance and execute our growth strategy.
In July 2023 Ray Bench was appointed as Non-Executive Chairman, while Simon Phillips took on the role of Chief Executive Officer. Scott McKenzie, previously Chief Executive Officer, stepped down from the Board to a new role as Chief Operating Officer, Sales and Product Development.
Francesca Ecsery was appointed Senior Independent Non-Executive while Nick Timberlake joined the Board as a Non-Executive Director.
In August 2023, we also announced the appointment of Geraint Davies as an independent Non-Executive Director, joining our Board on 18 September 2023 as a Chair of the Audit & Risk Committee. He brings over 30 years’ experience as a Partner in the “Big Four” accounting firms, working with global businesses in manufacturing, real estate, mining, distribution and financial services.
Outlook
The Board anticipates customer schedules to support continued strong demand in H2 2023, alongside stabilising pricing and inventory patterns. Trading since 30 June 2023 has been in line with the Board’s expectations.
We are expecting to recognise c.$8-10m of revenue from the tooling projects which are due to complete in H2 2023, subject to customer-led timings for the start of production. H2 2023 gross margins are expected to further improve in line with the ongoing margin improvement plan.
Looking further ahead, the Board is mindful of the possibility that the continuing macroeconomic uncertainty with regards to interest rates and inflation may result in a softening of demand leading into 2024. That said, whilst volumes and demand remain strong compared to the pandemic period, automotive sector global production is still at least 7% lower compared to 2019 levels.
The Board remains confident of underlying margin run rate progression in H2 2023 and of achieving its expectations for FY23, supported by the benefit expected from the Group’s efficiency initiatives.
Financial review
Revenue and margins
Total Group revenue for H1 2023 was $68.2m, up 26% on a continuing basis compared to H1 2022 ($54.2m, excluding discontinued UK revenue of $3.0m), as customer volumes and production schedules strengthened and automotive supply chain issues eased. Growth came from both improvement in production revenue which increased by 26% from $52.3m to $65.8m and an increase in tooling revenue from $1.9m to $2.3m.
Gross profit increased to $17.8m (H1 2022: $10.5m) and gross margins continued to improve and reached 26% (H1 2022: 19%) on the back of improved trading conditions and the Group’s ongoing efficiency initiatives in China and Türkiye which started to deliver savings. These initiatives include the restructuring of tooling operations and manufacturing footprint, supplier and logistics rationalisation as well as automation initiatives which are on track for H2 2023 implementation.
Non-underlying items
During the first half of 2023 the Group recognised non-underlying items of $1.2m (H1 2022: $0.7m). These items primarily related to costs of $0.9m (H1 2022: nil) in connection with restructuring and margin improvement initiatives. These costs included redundancies while optimising our manufacturing footprint in China and Türkiye ($0.1m), a write down of unviable stock as part of destocking and distribution centre rationalisation programme ($0.3m) and a $0.5m charge in relation to previously completed tooling projects.
The Group has been undertaking an exercise to improve reporting and governance. This has resulted in a change in the method to estimate tooling overheads and, as a result of applying this new accounting estimate, the Group is releasing production overheads in relation to tooling projects that were capitalised in prior periods. The amount for the current financial period is $0.3m (H1 2022: nil).
This change is expected to result in a non-underlying charge of $1.8m for the full year as the Group releases the previously capitalised production overheads as tooling projects are completed in the current year, with the full amount to be released in FY23. There is no cash impact. Following the full release in the current year, the change will have no further impact on future periods.
For further details, see Notes 4 and 13 of the condensed consolidated financial statements.
EBITDA and operating result
H1 2023 underlying EBITDA was $6.7m (H1 2022: $4.6m loss) while reported EBITDA was $5.4m (H1 2022: $5.2m loss) as a result of improved gross profit and after taking account of distribution expenses of $2.7m (H1 2022: $4.0m) and administrative expenses of $13.0m (H1 2022: $15.0m). A $1.3m reduction in distribution expenses was due to container rates settling to pre-covid levels.
During H1 2023 the Group benefitted from $0.3m of foreign exchange gains (H1 2022: $2.6m loss) due to favourable exchange rate movements primarily against the US$. These are included in administrative expenses.
Depreciation and amortisation charges remained at similar levels for the year at $3.0m (H1 2022: $3.0m). Therefore, the resulting underlying operating profit was $3.7m (H1 2002: $7.5m loss) and reported operating profit was $2.4m (H1 2022: $8.2m loss).
Discontinued operations
During FY22, the Group announced the closure of Chinatool Automotive Systems Limited, a production facility in Newton Aycliffe, UK, which was impacted by severe labour shortages and inflationary increases in energy costs and wages. The formal liquidation process is currently underway. Loss for the period attributable to the discontinued operations was $0.4m (H1 2022: $0.7m loss) and primarily related to translational foreign exchange losses on the £ denominated balance sheet items.
Prior period restatement
As previously disclosed in the 2022 Annual Report, during the preparation of FY22 year-end accounts, the Group identified prior period adjustments in relation to calculating the FY21 year-end inventory and transfer of tooling assets from the Group balance sheet to cost of sales upon the sale to the customer. Posting of the adjustments to FY21 year-end balance sheet had a knock-on effect on previously announced H1 2022 results.
The impact of posting the inventory adjustment resulted in an increase in the cost of sales in the period to 30 June 2022 by $1.1m and reduced inventories as at 30 June 2022 by $9.4m. The impact of posting the tooling adjustment resulted in the value reported in the cost of sales for the period to 30 June 2022 reducing by $0.4m and the value of property, plant and equipment decreasing by $2.2m. Therefore, the overall impact of prior period adjustments is an increase in the cost of sales for the period to 30 June 2022 by $0.7m and a reduction in net assets as at 30 June 2022 by $11.6m with a corresponding reduction in brought forward reserves of $10.9m.
Impact of hyperinflation
Applying the hyperinflation standard (IAS 29) in relation to Turkish operations resulted in an increase in Group revenue by $0.5m (H1 2022: $0.7m increase) and nil impact on Group EBITDA (H1 2022: $0.6m loss).
Capital structure, working capital and interest
Since December 2022 year end, the Group saw its net asset value increase to $11.1m (FY22: $2.6m) supported by the fundraise in May 2023 which generated net proceeds of $9.1m.
Non-current assets reduced to $16.9m (FY22: $19.9m), mainly reflecting a $3.0m (H1 2022: $3.0m) depreciation charge in relation to PPE, right of use assets and intangible assets.
During H1 2023, the Group saw a $6.9m increase in its current assets. This was primarily driven by an increase in trade debtors as the customer payment terms reverted back to normal and the proceeds of the fundraise, partially offset by the decrease in finished goods as the Group undertook a destocking exercise and distribution centre rationalisation programme. Trade and other payables reduced by $2.2m during H1 2023 as supplier payments have returned to normal and a portion of proceeds from the fundraise has been used to pay down suppliers in China and the UK.
The Group has continued to prudently manage its working capital by utilising available debt facilities and the proceeds of the fundraise. Cash and cash equivalents as at 30 June 2023 were $7.6m (FY22: $4.8m). Net debt as at 30 June 2023 was $9.0m (FY22: $12.2m) and included bank overdrafts, amounts drawn on the Group’s trade loans and invoice finance facilities with HSBC. After taking account of current and non-current IFRS 16 lease liabilities, net debt as at 30 June was $19.2m (FY22: $24.2m).
The Group uses HSBC post-dispatch trade loans and invoice financing facilities as an additional working capital lever. As at 30 June 2023 the amounts drawn on the Group’s trade loans and invoice finance facilities were $15.5m (FY22: $16.7m) against a total facility of c.$22m. Net finance costs increased to $1.1m (H1 2022: $0.8m) reflecting significantly higher UK interest rates.
On 27 April 2023 the Group announced a placing, raising total gross proceeds of $9.6m. The net proceeds of the fundraise of $9.1m have predominately been used to strengthen the balance sheet and to provide the Group with the flexibility to take advantage of growth opportunities. Additionally, a small portion of the net proceeds has been deployed to realise further efficiency savings, including through investment in injection moulding production processes and robotics.
Risks
The Board considers strategic and external, operational, financial and compliance risks and monitors them on a regular basis. Key risks and their mitigations were included on pages 32 to 37 of the 2022 Annual Report published on 15 June 2023 and there are no material changes since that date.
Further to the announcement of 17 August 2023, CT Automotive (LON:CTA), a leading designer, developer and supplier of interior components to the global automotive industry, has now confirmed the appointment of Geraint Davies as an independent Non-Executive Director with immediate effect.
Further information on Geraint Davies
Geraint Charles Boyens Davies, aged 67, is, or has been, a director or partner of the following companies or partnerships during the past five years:
Current directorships and partnerships
Past directorships and partnerships
Boyens Limited SCI Phoebe SCI Bellem SCI Mebel
Ernst & Young Europe LLP
Geraint Davies does not hold any interest in the ordinary shares of the Company.
CT Automotive is engaged in the design, development and manufacture of bespoke automotive interior finishes (for example dashboard panels and fascia finishes) and kinematic assemblies (for example air registers, arm rests, deployable cup holders and storage systems), as well as their associated tooling, for the world’s leading automotive original equipment suppliers (“OEMs”) and global Tier One manufacturers.
The Group is headquartered in the UK with a low-cost manufacturing footprint. Key production facilities are located in Shenzhen and Ganzhou, China complemented by additional manufacturing facilities in Mexico, Turkey and the Czech Republic.
CT Automotive’s operating model enables it to pursue a price leadership strategy, supplying high quality parts to customers at a lower overall landed cost than competitors. This has helped the Group build a high-quality roster of OEM end customers, both directly and via Tier One suppliers including Faurecia and Marelli. End customers include volume manufacturers, such as Nissan, and luxury car brands such as Bentley and Lamborghini. In addition, the Group supplies electric car manufacturers, including Lucid. It is also working with e.Go Mobile, a German manufacturer which plans to launch a series of small electric vehicles for the budget end of the market.
CT Automotive Group plc (LON:CTA), a leading designer, developer and supplier of interior components to the global automotive industry, has announced the appointment of Geraint Davies as an Independent Non-Executive Director.
Geraint will be joining the Board on 18 September 2023 and will become Chair of the Company’s Audit and Risk Committee at the same time, subject to the satisfactory completion of due diligence by the Company’s Nominated Adviser, Liberum Capital Limited.
Geraint is a Chartered Accountant with over 30 years’ experience as a Partner in the “Big Four” accounting firms, working principally with global businesses in manufacturing, real estate, mining, distribution and financial services. Prior to his appointment, Geraint held senior leadership roles in EY’s practices in the Channel Islands, the UK, and most recently in Malta. He has also previously held roles with PwC and Deloitte. Throughout his career, Geraint has had specific responsibility for risk, both at regional and national level, as well as leading on talent development and senior recruitment. Geraint holds a degree in Economics and Accounting from Bristol University.
Raymond Bench, Chairman of CT Automotive, said:
“We are delighted to welcome Geraint Davies to the Board and look forward to working with him. Geraint’s experience of working in multi-cultural teams and geographies combined with his strong assurance and accounting credentials are an excellent fit for CT Automotive, and will complement the current mix of skills and experience on our Board.”
CT Automotive Group plc (LON:CTA) Founder & Executive Chairman Simon Phillips joins DirectorsTalk Interviews to discuss audited results for the year ended 31st December 2021.
Simon gives an overview of what the company does, talks us through the key points from the 2021 performance, updates us on how trading has been so far through 2022, how the company is dealing with challenges that include the semi-conductor shortage, Ukraine and lockdowns in China and shares his view on the outlook for automotive manufacturing.
https://vimeo.com/711944157
CT Automotive designs, develops and manufactures automotive interior finishes and complex kinematic assemblies for the most well-known automotive brands on the planet.
CT Automotive Group plc (LON:CTA) Founder and Executive Chairman Simon Phillips caught up with DirectorsTalk for an exclusive interview to discuss what the company does, 2021 performance, how they are dealing with challenges in the sector and the short to medium term outlook for automotive manufacturing.
Q1: Simon, could you just briefly describe what it is that CT Automotive does?
A1: We are that company that for a lot of your listeners we interface with on a daily basis. When they’re in their cars, we manufacture air registers, armrests, deployable cup holders, all of the kinematic components that people tend to interface within their cockpits and their cars on a daily basis.
We also manufacture a lot of facia finishes that are along the instrument panels of the cars, they’re the decorative type finishers.
Within the finishes themselves, we produce the in-car lighting so for many people who’ve got the latest models, you’ll probably see this mood lighting that comes on so during the night-time, in the evenings, the foot wells illuminate.
So it’s a specialist market sector, not many people manufacturer these kinematic components because they’re quite complex to produce but that’s what we do.
Q2: Now, results out today, could you just summarise your 2021 performance and how the Board views the results compared to expectations?
A2: So, in terms of the results of 2021, the results was pretty much exactly as we’d planned for and it was kind of ambitious you could say to achieve results like that, particularly given what 2021 was like. In my 23 years in the auto sector, I don’t think there’s been a tougher time with everything that was going on out there that people are no doubt aware of from chip shortages to freight costs, to inflationary pressure, to COVID, to the supply chain issues that had been going on around the world.
The interesting thing is that if you look at say back in 2019, before the pandemic, to 2021, the auto industry as a whole, in terms of volumes, contracted by about 21% whereas we’ve just, finished our year-end results and our revenues now are about £133 million, which shows growth of roughly about 17% even compared to the ‘before COVID times’ back in 2019.
So, as a Board and management team, we’ve been really pleased, particularly on public markets, for it to be our first year full-year end and to have bucked the automotive trend to such a significant amount.
Q3: You’ve touched on the challenges, how is trading looking so far in 2022? Obviously, you’ve had these challenges such as semiconductor shortage, the Ukraine, lockdowns in China, how are you dealing with that?
A3: Well, for sure it’s continued to be a significant challenge in 2022, particularly in the first quarter. Going into Q3 and the outlook going forwards looks a lot better.
If I talk specifically about the kind of challenges, obviously something like the Ukraine is something that you can’t forecast for whatsoever but what I would say is that the supply chain that was coming out of the Ukraine was relatively simple parts, things like wiring harnesses and what the OEMs did in Europe is they’ve done a pretty fantastic job of resourcing that and setting those supplies up pretty quickly. So, that side has been largely dealt with, with regards to the Ukraine.
With regards to chip shortages, which I guess is the thing that people are talking about more never, what we have seen is that although it continues to be the constraint over supply, I think everybody’s aware that the demand in the auto sector is at an all-time high. Many of the OEMs have got orders backing up a year now, to a year and a half, some OEMs are actually thinking about stopping taking orders, it’s got that ridiculous. The constraint tends to be on the chip shortage side but on the positive side, the OEMs do know their allocation of chips now so what we have been seeing is a smoothing of this demand, which is exactly what we want as a manufacturer to actually have smooth schedules that allow us to operate in a more efficient way.
Other than that, I guess the other big question is the COVID situation in China. It’s definitely been an issue, particularly over the last few months with the lockdowns that have gone on in Shanghai. In Shenzhen, where we do most of our manufacturing, we had about one week lockdown so it wasn’t too much of an issue but the problem is, and everybody knows about the auto sector, is that this is a global supply chain issue. So even if we’re doing fine or another part of the world is doing fine, if a supplier is impacted in Shanghai and can’t supply parts, then it still stops production. So, you have to take a global view on that.
What we’re seeing amongst the OEMs is really a de-risking type situation so what the OEMs are tending to do is they’re pulling forwards demand and they’re starting to build stock in any areas that are at risk.
So, all things considered on those major points that we’ve spoken about, from our perspective in terms of our numbers, we’re pretty confident about 2022 and the reason why we’re confident about 2022 is we always took a pretty harsh view of what 2022 might look like. So, we never took a positive view on what the outcome could be, we already assumed that the chip shortage would carry on, we assumed it’s going to take quite a while for these plants to get back online so our numbers have been reduced accordingly.
As a whole, the auto industry, I think everyone knew that H1 was going to be difficult and I think there’s an expectation that there’s going to be a lot of easing into H2.
Q4: What is your view on the short to medium term outlook for the automotive manufacturing?
A4: So, short to medium term, I would say that going into H2, CT Automotive expect a pickup on volumes compared to H1 and easing of the chip shortage type situation, a recognition by them to de-risk themselves from certain scenarios like the COVID issue in China and therefore a pickup in demand across H2. Then I think the general view of the OEMs going into 2023, and it’s our view as well, is more of a normalisation, that’ll be for the first time in three years where the auto sector does actually start a really good recovery.
CT Automotive plc (LON:CTA) is the topic of conversation when Liberum Capital Equity Research Analyst Edward Maravanyika caught up with DirectorsTalk Managing Director Darren Turgel for an exclusive interview.
Q1: CT Automotive announced its 1H22 results last week for the half year ended 30 June 2022. What what were the key takeaways?
A1: I would highlight four things:
1H22 EBIT result was broadly in line with our expectations.
Strong activity momentum at the beginning of 2H up to mid-Sept points to volume recovery in 2H22 that could be ahead of management’s original expectations by end of the year.
Costs being mitigated by China manufacturing location, which is not seeing as high levels of energy cost and wage cost inflation as elsewhere outside China.
Semicon supply issues have abated.
Q2: Are there signs this positive momentum will continue in 2H ‘22 and beyond?
A2: Yes, they feel the production schedules at customers are very encouraging, supported by backlog at the OEMs. However, they also flagged macroeconomic uncertainty is a key risk given prevailing macroeconomic winds.
Q3: Have your forecasts changed in any way?
A3: Largely kept intact.
Q4: Overall, why does CT Automotive represent an attractive investment right now?
A4: 2011-21 Production revenue 14% CAGR, compares to -2% pa auto production growth.
Recent events have eased pricing pressure: recent margins are the highest in 2 decades as structural supply-chain disruptions have reduced pricing pressure and supported margins. In turn, auto inventories have structurally shifted lower and unlikely to return to pre-pandemic levels.
Data policy – All information should be used for indicative purposes only. You should independently check data before making any investment decision and or seek professional advice. DirectorsTalk cannot guarantee that the data is accurate or complete, and accepts no responsibility for how it may be used.
