TI Fluid Systems boosts revenues across all locales

Investors gave TI Fluid Systems (TIFS) a resounding vote of confidence on release of the automotive fluid storage specialist’s half-year numbers. The share price increased by upwards of 15 per cent on results day on news that the group had adopted a progressive dividend policy and that a €40.0mn (£34.5mn) share buyback would be launched in the second half of the year.

Circumspect investors may question the prudential basis of the decisions given the debt overhang, although group leverage remains well within covenant. Adjusted free cash flow stood at €2.3mn at the half year, which doesn’t afford a great deal of flexibility, while management expects adjusted free cash flow conversion at the rate of approximately 30 per cent of adjusted cash profits for 2023.

TI Fluid Systems delivered 15.1 per cent revenue growth at constant currencies, while enhancing the adjusted trading margin by 210 basis points to 7.5 per cent. Sales ticked up across all locales, which is somewhat surprising given varying levels of demand across the global commercial vehicle market. Margins were supported by price and cost recovery agreements to offset inflationary pressures, in particular rising labour costs. The impact of recoveries (net of cost inflation) was a net benefit of 130-basis points in the period under review and the lion’s share of the agreements have been concluded for 2023.

Prospects have strengthened on the back of Chinese battery electric vehicle (BEV) awards and the group expects its adjusted trading margin to surpass 7 per cent this year, assuming global light vehicle production will increase by 3.3 per cent. The EV/Ebitda measure is well below the five-year average and the shares change hands at 7.7 times Peel Hunt's forward EPS estimate. A modest asking price but we fall under the “circumspect” category. Hold.  

Last IC view: Hold, 106p, 16 Mar 2023