Magna: More Than the Sum of Its Parts?

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As

James Bond

roars down some predictably windy mountain road in his BMW Z3 roadster, does he ever pause to think that the sports car's provocative body is produced in Canada? Probably not. Pity...

If he did, he would have no doubt been impressed by the fact that a lot of the interior and exterior components of many of the world's snappiest (and dullest) cars are manufactured by

Magna International

(MGA) - Get Report

manufacturing platform in Europe.

That was last week. This week, Magna announced a bid for

Triam Automotive

(TRU:Toronto). At C$1.50 a share plus 0.0943 shares of MGA, it's relatively small change. Magna thought the firm's laser welding technology was worth having. If MGA gets 90% subscription, it will slam dunk the other 10%. Next week? Who knows? Since Magna has grown primarily by way of acquisition, neither deal, as a deal, was a surprise. Over the years, analysts have simply become familiar with Magna's approach. It's a strategy that has worked pretty well as the company's content per vehicle rose 30% this year and is expected to rise at least 10% a year going forward. As long as vehicle sales continue to expand.

Net profit margins have stayed fairly static, averaging 6.7% annually over the last three years. Revenues, projected to rise 25% annually out to 2000, were US$1.8 billion in '93 and look to be around US$8.4 billion in 1999, up 366%. EPS multiples have been historically cheaper by a couple of points than those of competitors such as

Dana

(DCN)

and

Lear Seating

(LEA) - Get Report

.

Over the last 52 weeks, MGA has moved to its current new high of US$77 from a low of US$49. In a market that loves sex appeal, MGA is hardly the most interesting dance partner. However, as car companies' sales strengthen, report record earnings and streamline both corporate and manufacturing operations, Magna is well positioned. The low Canadian buck (groan) doesn't hurt either. I would like to think MGA would contemplate a split soon, as lofty stocks tend to turn off small investors. A 3-for-1 or better would be nice.

Magna's growth over the last decade has been nothing short of spectacular. And still, the multiple is low, the prospects are good and acquisitions continue apace and make sense. But remember, while the company's fortunes have resulted from good management and canny growth, the future is predicated on something very simple: unit auto sales, with all the economic baggage that can carry. Magna is not so much a company play as an industry play, and sensitivity to the aforementioned economic factors must be weighed in an assessment of future growth.

Bob Beaty covers Canadian issues from Bowen Island, British Columbia. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Beaty welcomes your feedback at

bbeaty@netcom.ca.