Tenneco Inc

Tenneco Inc (NYSE: TEN) is an Automobiles & Parts Company. The Company is engaged in the business of designing, manufacturing and marketing automotive products. The Company has an employee base of 78,000 people and is operating through 300 sites globally.  

Investment Highlights - Tenneco Inc – Expensive at USD 11.14

• The Company’s performance was severely impacted by the covid-19 pandemic in the financial year 2020, with lower revenue and negative earnings.
• The Company reported a negative ROE (Return on Equity) of 232.9% in FY2020, which is significantly lower than the industry median of 9.9%. The Company’s ROE is significantly declining for the past three years.
• As per valuation metrics, the EV/Sales multiple of Tenneco Inc is currently higher as compared to the corresponding multiple of the Automobile & Auto Parts industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 64 level), which means the stock price could decline in the short term.

Key Risks

• The Covid-19 pandemic had a material impact on the demand and supply of the Company, which widened the operating losses in H1 FY20.
• The trading environment is anticipated to remain challenging, and the Company is unable to predict demand trends until the business starts to operate normally at full capacity.

Financial Highlights – Q4 & FY2020 (31 December 2020) (released on 24 February 2021)

• For the financial year 2020, due to the impact of the covid-19 pandemic, the revenue declined to $15.4 billion. The revenue in Q4 FY2020 surged by 12%.
• Due to the lower revenue, the Company’s earnings declined in the financial year 2020, while earnings improved in Q4 FY2020.
• The cash balance as on 31 December 2020 increased to $798 million (31 December 2019: $564 million).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings (NTM) (Illustrative)

Conclusion

The Company has shown a decline in financial performance in the financial year 2020. Both the top-line and the bottom-line performance declined, while profitability remained in the negative zone. The Company’s revenue and earnings increased in the fourth quarter of the financial year 2020. TEN has shown an increase in the liquidity position while reported a poor balance sheet. The Company has strong cash generated from operations in Q4 FY2020, driven by effective working capital management and strong earnings. Overall, the Company has managed to improve financial performance in Q4 FY2020, while business performance is still impacted by the covid-19 pandemic. Presently, the company is trading near a 52-week high, raising doubts about its upside potential at current prices. The stock made a 52-week low and high of USD 2.21 and USD 12.94, respectively.

Based on the factors highlighted above, we believe the stock of Tenneco Inc is “Expensive” at the closing price of USD 11.14 (as on 24 February 2021), with support from few catalysts needs to be evaluated at a later stage, such as actions taken to preserve cash to meet working capital needs.

Commercial Vehicle Group Inc

Commercial Vehicle Group Inc (NASDAQ-GS: CVGI) is a US-listed Industrial Engineering Company. The Company is a supplier of a variety of products and services related to the cab, including medium and heavy-duty trucks.

The Company will release Q4 and FY2020 results on 10 March 2021.

Investment Highlights - Commercial Vehicle Group Inc – Expensive at USD 9.33

• The Company has faced several operational challenges due to the covid-19 pandemic, and the financial performance also declined significantly.
• The Company has reported a weak balance sheet which may impact the demand recovery in the near future.
• As per valuation metrics, the Price/Earnings multiple of Commercial Vehicle Group Inc is currently higher as compared to the corresponding multiple of the Automobile & Auto Parts industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 52 level), which means the stock price could decline in the short term.

Key Risks

• The recent outbreak of COVID-19 may have a significant and prolonged impact on global economic conditions.
• The Company works on complex and potentially hazardous projects, which require continuous monitoring of health and safety risks.

Financial Highlights – Q3 and 9M FY2020 (30 September 2020) (released on 9 November 2020)

(Source: Quarterly Report, Company Website) 

• In the third quarter and nine months period of the financial year 2020, due to less commercial vehicle builds, the revenue declined to $187,697 thousand and $501,698 thousand, respectively.
• The profitability margins for Q4 FY2020 declined due to lower revenue. The Company reported a net loss of $32,913 thousand for 9M FY2020.
• The cash balance as on 30 September 2020 increased to $53,601 thousand (31 December 2019: $39,511 thousand).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a decline in financial performance in the third quarter and nine months period of the financial year 2020. Both the revenue and profitability have declined. The profitability margins for nine months period entered the negative zone. CVGI managed to increase its liquidity position while reported a poor balance sheet. The Company’s operations were impacted by the covid-19 pandemic as it resulted in disruption in the supply chain and lower production. Moreover, the Company’s share price is trading near its 52-week high, which raises doubt over its upside potential. The stock made a 52-week low and high of USD 1.24 and USD 10.28, respectively.

Based on the factors highlighted above, we believe the stock of Commercial Vehicle Group Inc is “Expensive” at the closing price of USD 9.33 (as on 24 February 2021), with support from few catalysts needs to be evaluated at a later stage, such as actions taken to preserve cash and control costs.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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