Lear Corp.: Leader in Auto Seating and Electrical Distribution Systems

Andrew Macken of Montaka Global Investments presented his in-depth investment thesis on Lear (US: LEA) at Asian Investing Summit 2019.

Thesis summary:

Lear Corporation is a leading manufacturer of seating and electrical distribution systems for the auto market, with top market share in the luxury seating category. Demographic changes (a rising middle class in fast-growing emerging markets fueling auto demand) and technological advancements (electrification of vehicles and vehicular connectivity increasing the content-per-vehicle) should support future revenue growth at Lear. As higher disposable incomes in China fuel auto demand, headroom exists for China’s low car penetration rate (approximately 155 cars per 1,000 people); Lear is a beneficiary, with almost one-third of backlog coming from China. The expected proliferation of electric vehicles (electric and hybrid production forecast to grow approximately 40% annually over five years) presents solid incremental content-per-vehicle opportunities for Lear.

Despite a demonstrable track record of high returns (average pre-tax ROIC of almost 50% over the last seven years), the shares recently traded at 8x forward earnings, implying a top-line decline and margin compression. Andrew believes the opposite is likely to occur. Under a more realistic set of assumptions, the shares may be worth approximately USD 210 per share, implying 50+% upside.

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About the instructor:

Andrew Macken is the Co-Founder and CIO of Montaka Global Investments. Montaka Global Investments manages the Montaka global equity long/short strategies as well as the Montgomery Global long-only strategies, in partnership with Australian boutique fund manager, Montgomery Investment Management. After spending nearly four years as a senior member of Jim Chanos’ research team at Kynikos Associates, a global equity long/short fund based in New York, Andrew has developed particular expertise in short portfolio management. Kynikos is one of the largest short-focused hedge funds in the world and manages capital on behalf of high net worth families and institutional investors. Prior to this, Andrew worked as a management consultant at Port Jackson Partners (PJP), a leading advisor to corporates based in Australia and abroad. At PJP, Andrew focused on corporate strategy for major clients both in Australia and overseas. Andrew holds a Master of Business Administration (Dean’s List) from the Columbia Business School in New York. Previous to this, Andrew also graduated with High Distinction with a Master of Commerce, focusing on Finance; and First Class Honours with a Bachelor of Engineering under a Co-Op Scholarship from the University of New South Wales in Sydney.