TI Fluid Systems' shares up 30% in strong automotive market

Last year’s rebound in the automotive sector drove most of the improvement experienced by TI Fluid Systems (TIFS).

Global light vehicle production rose by 9.4 per cent to 90.1mn units, and the company’s top line increased by 11 per cent on a constant currency basis. This fed through to its bottom line, with a £217mn prior-year operating loss turning into a £196mn profit. 

Yet chief executive Hans Dieltjens argued that a shift in strategy first announced in 2021 to move the business more firmly towards the electric vehicle market also played a part, and that a reorganisation away from product lines to focus instead on three main regions – the Americas, EMEA and Asia Pacific – would bring further benefits this year. 

This helps when it comes to the tricky business of deglobalisation. For instance, in China TI Fluid Systems has been focusing its efforts more keenly on local manufacturers, who are taking a much bigger share of the market. Over half of new product launches in China last year were with local producers.

After increasing its underlying operating margin from 5.5 per cent to 7.4 per cent in 2023, Dieltjens expects a further improvement this year, even with revenue only expected to grow marginally given stalling global light vehicle production. 

TI Fluid Systems' shares are up 30 per cent year on year, but still only trade at six times Jefferies’ forecast earnings, well below their five-year average of 9.7 times. Net debt is still a concern for some, but having been reduced to 1.5 times adjusted Ebitda, it shouldn't act as a brake on the company's growth. Speculative buy.

Last IC view: Hold, 151p, 8 Aug 2023