(Alliance News) - The stock market is not giving TI Fluid Systems enough credit for its "significant recovery potential", analysts at Jefferies said after a surprisingly positive trading update on Thursday.
Jefferies reitereated its 'Buy' rating for TI Fluid, with a target price of 175.00 pence per share. The stock was up 2.0% at 132.80p in London on Friday.
In its Thursday trading update for the third quarter of 2023, TI Fluid said revenue in the first nine months of the year rose 8.9% to EUR2.6 billion from EUR2.4 billion. Fluid Carrying Systems revenue increased 11% to EUR1.52 billion, while revenue for Fuel Tanks & Delivery Systems rose 6.4% to EUR1.10 billion.
TIFS said the overall revenue growth was in large part due to the strengthening of the Euro causing a foreign exchange headwind. The FCS division's success reflected "strong industry volume growth, inflationary cost recoveries and successful launches of thermal management programmes for hybrid and battery electric vehicles." In FTDS, meanwhile, it reflected the company's success with hybrid vehicle platforms as well as inflationary cost recoveries.
Regionally, TIFS said Europe & Africa and North America "delivered particularly strong growth" with revenue up 15% to EUR1.01 billion in the former and 13% to EUR753.7 million in the latter. Again it credited cost recoveries, plus market volume growth and successful product launches. Latin America revenue meanwhile grew 16% to EUR44.1 million.
TIFS noted the United Auto Works union's six-week strike action, which ended on Monday, but said it only had a limited impact on North American revenue.
Asia Pacific revenue however decreased 1.6% to EUR809.0 million, which TIFS blamed on "some ongoing unfavourable mix" in China as domestic OEMs or original equipment manufactures continue to "grow strongly" there.
Jefferies analysts approved of the company's progress, saying: "This was a robust trading update given challenges in all key geographies...and it has been taken well by the market." Regarding the UAW strike, they added: "Group profitability was said to be in line with [management] expectations despite the disruption, and offsetting labour with productivity initiatives is a focus."
Notably, Jefferies claimed to "see no cause for concern" despite difficulties in the Asia Pacific region which "this should be watched closely given the ambitious sales targets", since "there is a lot of work being done here as TIFS continues to build on the strong progress it has made...and it will take some time for the results to come through."
TIFS said on Thursday that it remains confident in its full-year outlook. Chief Executive Officer Hans Dieltjens explained: "TI has delivered strong revenue growth in the first nine months of the year and we are confident in our full year guidance for revenue outperformance, strong Ebit margin expansion and robust cash conversion."
On Friday, after reiterating its 'Buy' recommendation, Jefferies explained: "It was pleasing to see yet another positive update from TIFS, as following a volatile year, consistent execution is key to the investment case.
"With the strikes now largely behind us, an attractive margin recovery story, and growth in China...Valuation remains very attractive, in our view, particularly given the margin targets, and the recent lack of share price movement is not giving TIFS credit for its recovery potential and the progress made."
By Emma Curzon, Alliance News reporter
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TI Fluid Systems (TIFS)