value and opportunity

In my first post about Lingotes Especiales, the spanish auto parts producer, Chiru made a very valid comment:

Lingotes Especiales looks like a typical cyclical auto supplier to me. Such cyclical companies trade most of the time below book value. So I wouldn’t say they are extremely cheap. It’s rather a normal valuation given that there is some downside risk in the european auto market.

I tried to collect a sample of “traditional” European auto part suppliers with a market cap between 10-100 mn EUR. If we look at the table, we see that Chiru is right:

One can clearly see thath especially the French companies look really really cheap.

On that basis, Lingotes (P/E 6, EV/EBITDA 3.0, P/B 0.9) looks kind of “average”. Only the current 8% dividend yield stands out.

So we identified one of the reasons why Lingotes is cheap: This is that ALL the smaller traditional autoparts companies are relatively cheap. This is important, as my initial thesis was that Lingotes is cheap because it is a Spanish company.

One could argue that Lingotes might need to trade higher than the Peer Group, as most of the peers had at least 2 loss years over the last 10 years, but at the end of the day one would need to make the industry analysis first. Intuitively I would also agree that there are cyclical risks to th car industry and if the big car producers suffer, the suppliers suffer even more.

As a result, Lingotes and the other cheap autt part suppliers will move some positions to the back of my research pile.