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Let us turn “need for speed” into shares: does Suzuki worth it?


A little bit about the company

Suzuki Corporation was founded by Michio Suzuki in October 1909 and is headquartered in Hamamatsu, Japan. It operates through the following segments: Motorcycles, Automobiles, and Special Machines. At the beginning the company focused on loom producing and only in the middle of 20-th century they started cars manufacturing. Moreover, it is Michio Suzuki who decided to create “Power Free” bicycle in order to satisfy humans need for comfortable and cheap way of moving.

The company entered Russian market in 1998 and managed to become one of the top-10 most popular motorcycles’ brand according to the Expert.ru rates (in Russia Suzuki is mostly associated with motorcycles). And it is absolutely reasonable, as when staring at these vehicles it is impossible not to dream about owning it.

“New life” for races

In the beginning of 2015 Suzuki decided to take part in privileged racing MotoGP again after the long break since 2011. As a results of the final races on the 8 of November one of the racer, P. Espargaro, have won the 8-th place after the Honda and Yamaha racers. It can be called good enough result for the after-break time. Nevertheless, the best results for Suzuki Ecstar team was the 6-th place in Catalonia in 14 of June. It is nearly the same as in 2011 results. Straight after final race data revealed, the shares price fall down from 3970 to 3940.

Financial analysis

Made by TradeInTime according to Bloomberg

According to the data presented revenue has grown up sharply for 13,96% in 2014 while cost of sales increased approximately for 2,2%, that reveals the great number of the goods sold. Although in 2015 there is climbing up dynamic (2,63%), the EBIT has fallen for 1,95% (in 2014 there were 41,38% growth). However, the year hasn’t finished yet and the revenue and gross profit continue growing.

Comparative analysis

JPY
Name Mkt Cap (JPY) P/E ROE,% Dvd 12M Yld EV/EBITDA Total Debt/ EBITDA EBITDA/ Interest
Average 6065245,09 11,77 15,29 2,05 6,01 2,30 89,12
SUZUKI MOTOR CORP 2154982,69 17,29 10,32 0,83 6,19 1,25 33,27
MITSUBISHI MOTORS CORP 1080060,79 9,87 17,22 1,50 3,78 0,17 46,08
DAIHATSU MOTOR CO LTD 661186,35 11,17 10,04 2,71 5,47 1,05 144,59
FUJI HEAVY INDUSTRIES LTD 3980872,96 11,60 33,22 2,14 5,31 0,34 170,47
HONDA MOTOR CO LTD 7310925,14 14,03 7,71 2,18 8,29 4,63 71,22
NISSAN MOTOR CO LTD 5897272,86 10,01 11,58 2,87 3,64 4,43 47,10
MAZDA MOTOR CORP 1517984,90 9,83 18,07 1,19 5,21 2,20 18,37
TOYOTA MOTOR CORP 25918674,98 10,37 14,16 2,97 10,17 4,31 181,87

Made by TradeInTime according to Bloomberg

The table reveals the main indicators of competitive automobile companies’ financial activity. As is observed Suzuki is the 5-th among 8 companies according to the capitalization level. At the same time P/E ratio is the highest one (17,29) that could be explained by investors’ expectations of higher earnings growth in the future in contrast with other companies’ stocks.

In order to better understand the dynamic of P/E ratio let’s look at the bar chart below (the first left graph on the top of the picture).

According to Bloomberg

Although the declining P/E trend take place in 2015 after sharp surge in 2014 there is a potential for the future growth. Moreover insignificant 1,25 Total debt/EBITDA ratio displays the independency of external parties and top-3 last place in EV/EBITDA multiple can be counted as a good financial stability result in comparison with Suzuki rivals. In addition, climbing up dividend payout ratio tendency points out that in 2015 the percentage of earnings paid to shareholders in dividends is rising, that makes Suzuki shares perspective for buying (despite low dividend yield in contrast with competitors).

According to Bloomberg

Shares price valuation

Analyzing graph from 1975 onwards it is clear that company has been developing successfully (shares price climb up from less the 250 JPY to approximately 4000 for today). Nevertheless, the 2008 crisis impact awfully on Suzuki corp. plunging its shares for more than 2000 JPY.

According to Bloomberg

During the last year, the fluctuating increase resulted in the peak of 125 un the beginning of August. After that, prices fell noticeably for about 30 points (from about 125 to roughly 95). Since then the slowly rising tendency appeared leading the shares prices continuous growth. In addition, there is a strong correlation with NIKKEI 225, one of the most significant Japanese index (green line), that is said to be rising fast and worth buying (according to professional analytics).

According to Bloomberg

Recommendations

  1. Shares volatility is high enough in short periods, that makes them a good source for speculation. Moreover, correlation with NIKKEI 225 index (that is moving up steadily) allow us to propose these shares for buying as soon as possible.
  2. Also, their fluctuated shares’ trend have just starts rising from 96 points in October and is 103,81 now. Taking into account the overall rising tendency it is a good time for a month-long buying.
  3. For the long-term purpose it is also convenient to purchase shares as Suzuki have backed to MotoGP (that is a great advantage for the brand), they are rising dividend payments and try to be up-to-day developing modern comfortable cars in accordance with consumers needs.
  4. Furthermore, high P/E ratio (even in case of dropping to 15) reflects investors’ belief in future increase of company’s shares price.