DBRS Confirms Magna International Inc. at A (low), Trend Remains Stable

DBRS Limited (DBRS) has today confirmed the long- and short-term ratings of Magna International Inc. (Magna or the Company) at A (low) and R-1 (low), respectively, with the trends remaining Stable. The ratings reflect the Company’s solid business profile as a global leading Tier 1 auto supplier. Magna’s financial risk profile also remains consistent with the ratings. DBRS expects Magna’s performance over the near to medium term to remain solid amid industry conditions that in aggregate remain rather favourable, with moderate increases in global automotive production expected to persist over the near to medium term.

Magna’s operating performance remains on track as 2016 consolidated sales grew by 13% relative to 2015, with EBIT margins improving slightly to a level of 7.3%, (which is very solid for the automotive parts sector); in Q1 2017, sales and earnings reached record levels. While the Company’s recent growth has been bolstered by acquisitions (most notably that of the GETRAG group of companies (GETRAG) in Q1 2016), DBRS notes that Magna’s organic growth has also outpaced that of the industry. This trend is estimated to continue with Magna (through its diverse product areas and increasing competencies in several nascent automotive technologies) being well positioned to defend and even increase its content per vehicle going forward, in line with emerging industry trends, including the consolidation of global vehicle platforms, the growing prominence of semi-autonomous/active safety technologies, higher penetration rates of alternative powertrains, vehicle light-weighting and the increasing application of multi-material structures, among others. Moreover, as a function of its growth in Europe and Asia, the Company’s earnings diversification by geography has also improved, although North America still generates the majority of the Company’s profits. Finally, through Magna Steyr AG & Co KG (Magna Steyr; complete vehicle assembly), the Company offers a unique proposition to existing original equipment manufacturers as well as to potential new industry entrants, with Magna Steyr’s sales slated to undergo substantial growth over the near to medium term, in line with forthcoming vehicle programs, which will significantly increase complete vehicle assembly volumes and sales.

With respect to Magna’s financial risk assessment, as of March 31, 2017, the Company’s debt-to-EBITDA ratio (adjusted for operating leases) was at a level of 1.1 times (x). Magna’s current financial policy targets a debt-to-EBITDA range from 1.0x to 1.5x. Even at the upper-end of this range, DBRS notes that the Company’s credit metrics would remain well consistent with the assigned ratings. Accordingly, given Magna’s solid operating performance and absent a marked shift in the Company’s financial policy, DBRS does not anticipate any negative rating implications over the near- to medium-term. Conversely, DBRS sees limited potential for positive rating actions over the foreseeable future given the high level of the current ratings (compared to the industry average).

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The principal methodology is Rating Companies in the Automotive Supplier Industry (October 2016), which can be found on dbrs.com under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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