Supply chain problems start to ease for TI Fluid Systems

In a post-close trading update in January, TI Fluid Systems (TIFS) said that a planned carrying value review would probably lead “to a material non-cash impairment charge”. And so it came to pass. The automotive fluid storage manufacturer duly swung to a statutory operating loss of €217mn (£192mn), against a profit of €127mn a year earlier, after the review precipitated a €317mn non-cash exceptional impairment charge.

The review took account of a projected reduction in global light vehicle production (GLVP) over the medium term, along with increases in discount rates arising from the rapid step-up in interest rates. On an adjusted basis, profits were down by 15 per cent to €180mn on a 170 basis point contraction in the underlying margin.

Revenue rates impressed in the group’s North American and European markets. The Asia Pacific region was also generally favourable, although China was something of an outlier due to an adverse business mix linked to original equipment manufacturers and phasing effects. Matters weren’t helped by the abrupt change in Covid-19 policy towards the end of the year.

There were more signs that TI Fluids is cementing its position in several markets linked to the electrification of the automotive market over the medium term, although it stressed that bookings and revenues from its hybrid and internal combustion businesses remain encouraging.

Peel Hunt expects adjusted earnings per share of 11.7¢, rising to 16.1¢ in 2024.

The group is conservatively guiding for GLVP of 83mn units this year, against 82mn in 2022. Supply chain constraints are easing, which should feed through to improved margins, while free cash flow as a proportion of adjusted profits is also forecast to improve. But a forward rating of 10 times forecast earnings adequately reflects the balance of risks. Hold.  

Last IC view: Hold, 173p, 9 Aug 2022