What are we looking for?
Canada’s auto parts manufacturers sit inside a tightly integrated North American supply chain, feeding assembly plants in Ontario and the U.S. Midwest with stamped metal, powertrain components, interiors, electronics, and EV and battery-related parts. The sector’s near-term performance is being pulled in opposite directions. What are we seeing for valuations here?
The screen
We used stockcalc’s screener to select the top nine listed auto-parts manufacturers by market capitalization on the TSX. We then used stockcalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see if it is undervalued or overvalued compared with its price. Overview of the techniques used:
- Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
- A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
- An adjusted book value (ABV) is calculated by multiplying book value per share by its 10-year average price-to-book ratio.
- If we have analyst coverage, we may consider the consensus target price.
More about stockcalc
Stockcalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. Stockcalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to stockcalc using the promo code “Globe30“, which offers a 30-day free trial and special pricing for the second month.
What we found
You can see in the accompanying table the percentage difference between each stock’s recent close price and its intrinsic value. The “stockcalc valuation” column is a weighted calculation derived from our models and analyst target data, if used.
This is a very important sector in the Canadian economy: The Canadian Occupational Projection System estimates the automaking industry employed 176,900 workers in 2023, with 54 per cent of those in motor vehicle parts, and Ontario accounting for the bulk of that employment. From an economic-output view, the federal automotive industry profile reports a $16.8-billion contribution to Canada’s GDP in 2024 including the wider automotive manufacturing base with $9-billion attributed to the parts sector.
The sector is dealing with a number of competing influences currently: A decline in Canada’s policy interest rate since mid-2024 has eased financing pressure for automakers, suppliers, and consumers, but demand remains sensitive to credit conditions and the overall economy. The United States–Canada auto tariffs and countertariffs and USMCA renewal and compliance rules are creating uncertainty and costs but at the same time are encouraging “made-in-North-America” sourcing. Mexico’s cost advantage, coupled with the United States push for reshoring via incentives, and China’s scale in EVs and components are also intensifying margin pressures.
Coupled with that, Canada’s new Chinese EV policy from the agreement-in-principle this month allows up to 49,000 China-made EVs a year at a 6.1-per-cent tariff rate, (rising to 70,000 over five years), reversing the prior 100-per-cent surtax adopted in 2024. In Canada there are 150,000 to 190,000 passenger vehicles or light trucks sold each month on average.
Let’s look at a couple of these companies:
Martinrea International Inc. MRE-T engages in the design, development, manufacture and sale of engineered, value-added lightweight structures and propulsion systems for the auto sector in North America, Europe, and internationally. The company offers a wide range of products including control arms, links, subframes, engine blocks and transmission housings.
On Jan. 15, the Vaughan, Ont.-based company announced it had acquired common shares in Polyalgorithm Machine Learning Inc. (PolyML). PolyML is focused on advanced machine learning and data analytics designed to find solutions from large, complex, and information-dense data sets. Its Fiins AI technology serves as the core intelligence behind Martinrea’s adaptive-welding software platform. Our models and the analyst consensus are both showing upside to MRE-T.
Exco Technologies Ltd. XTC-T, together with its subsidiaries, designs, develops, manufactures, and sells dies, moulds, components and assembilies, and consumable equipment for the die-cast, extrusion, and automotive industries. The Markham, Ont.-based company has operations in Canada, the United States, Europe and elsewhere. Our models as well as analyst consensus show upside to the current stock price.
Investing involves risk. stockcalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.
Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.