BCV Bulletin - Recent Trading Activity - August 19, 2024
SELL: Enbridge Inc. (TSX: ENB)
BCV has further reduced its holdings in Enbridge Inc (“Enbridge”). While Enbridge’s dividend yield is significant, prospects for long-term share price appreciation appears limited and the company itself is “richly valued ”. The reduction in dividend income from selling Enbridge to add to Magna International Inc. (see below) is approximately 2.5%. This is more than offset by a less leveraged balance sheet and the current perceived discount to intrinsic value over the long-term.
BUY: Magna International Inc. (TSX: MG)
Magna International Inc. (‘Magna”) is a global automotive parts supplier with core capabilities in body exteriors and structures, power and vision, seating systems, and complete vehicles. Due to the expected rapid adoption of electric vehicles globally, the auto industry invested significant capital towards the transition to electrification. While the global electric vehicle market continues to grow, reaching 14 million units*, or 18% of all cars sold in 2023 (up 35% from 2022), the adoption curve has potentially stagnated. In its most recent quarter, Magna downwardly revised its medium-term sales and profit outlook due to electric vehicle program cancellations, delays, and reduced volume assumptions. As a result of these headwinds, Magna’s valuation has become discounted, with the stock trading below the implied value of its assets, a level not seen since the global Covid19 pandemic and the 2007-2008 financial crisis. With a strong balance sheet and the expectation that revenue, margins, and cash flow should accelerate, we believe the current share price presents a compelling opportunity to increase our position size.
*Source: International Energy Agency (IAE 2024)This BCV Bulletin is intended for residents of the provinces and territories in which we are registered, is not meant to be a solicitation to any persons not resident in those jurisdictions and does not constitute an offer to buy or sell our products or services. Any opinions expressed are just that and are subject to change. Information is provided on a best-effort basis and its accuracy cannot be guaranteed. Information may also be provided from third party sources which are believed to be reliable, but we do not guarantee its accuracy or completeness. Certain statements may contain forward-looking statements, which involve known and unknown risk, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. This BCV Bulletin has been prepared for general informational purposes only, is not intended as investment and/or financial advice on any subject matter and the securities mentioned should not be construed as a recommendation for any specific securities. ©BCV Asset Management Inc. 2024.
