Tuesday, February 15, 2011

Linamar Corporation

This is a stock (TSX-LNR) that I track, but I do not own. This is a manufacturing company, so they tend to have a low payout ratio on both earnings and cash flow. Over the longer term, the dividend growth is 4.1%, but the dividends have not grown over the past 5 years. They do not often increase their dividend. Also, because they had problems in 2009, they decreased their dividends for that year.

This company has had some ok growth over the past 5 and 10 years. However, I see nothing to get excited about. Total Growth has been at 13% and 7.4% per year, respectively. The dividends portion would be around 1.5% per year. The risk of an investment in this firm would be average.

They manufacture for the automotive industry and this is probably why there is no strong growth in the company. Don’t get me wrong, this company has done fine, I just do not think that it is a great dividend paying investment and that it the sort that I like. However, if you need some diversification into the industrial area, this might be a stock to hold for the long term. It is just never going to be a great dividend payer.

They have not done that well in increasing their revenue with the short term figures being down and the long term figures growing at about 3% per year. However, revenue is expected to pick up over the next few years. Earnings have not been great, with current long term growth at 2% and short term close to 0%. Earnings are also expected to pick up this year and next.

Growth in Cash Flow is very good at around 14% per year over both the short term and long term. However, if you excluding working capital from the cash flow, which a lots of people now think you should, the growth in cash flow is only 2.3% per year over the long term and slightly negative per year over the short term.

When I look at growth in book value, this is rather low also. The 5 and 10 year growth is 5% and 6% per year respectively. This is a bit subpar. You expect the 5 year to be low, but I would expect a better 10 year showing. The 5 year average for Return on Equity is usually not bad being around 10% to 11%. However, for the financial year ending in 2009, the 5 year average just below 8%. There was an earnings loss in 2009.

I guess the best part is the debt ratios. The Liquidity Ratio is very good currently at 1.62. The Asset/Liability Ratio is also very good at1.89. The Leverage Ratio (Assets/Book Value) at 2.00 is also good.

Tomorrow, I will talk about what my spreadsheets says about the current stock price and also what analysts are saying about this stock.

Linamar Corporation is a diversified global manufacturing company of highly engineered products. It is a world-class designer and diversified manufacturer of precision metallic components and systems for the automotive industry, and mobile industrial markets. Its web site is here Linamar. See my spreadsheet at lnr.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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