Adient quantify Coronavirus fallout

All,

Please find our updated analysis here.

Impact:

- Based on an assumed Chinese production decline of -70% in Feb and -40% in March, Q2 Equity Income is expected to be zero and down another $25m in Q320. 

- Adient are just stopping short of lowering their EBITDA guidance for the year - stating that 2020 Earnings are now tracking towards the low end of — guidance previously given as $870m to $910m.

- Arithmetically applying the E60m EBITDA hit saddles Adient with an additional 0.4x turns of leverage. The impact however should be predominantly a one-off affair (always some lasting damage). Thus if bonds trade down - and some of the impact is surely already priced in - we would be inclined to pick up some 26s at the right time. Clearly that right time is not so easy to pick at the moment, but we are earmarking the bonds.

Risk to guidance:

- The company expects the combined consolidated and unconsolidated EBITDA impact to be $70m, thus another E10m higher.

- Note however, that guiding for the lower end of the previously supplied EBITDA range drops expectations by only $20m from the arithmetic mean. Thus to achieve guidance Adient would have to make up another $50m of guidance. 

- We assume that management will have sand-bagged initial guidance a little bit. But $50m seem like a large gap. Moreover, if the disruption extends beyond March or impacts March by more than -40%, guidance could be at stake after all.

Stable, but lean:

- Fundamentally the company has largely realised its turnaround plans. Adient therefore seems on a stable path from here, with new model introductions rolling off in H220. However, the company now also has less fat to cut than peers if that were required.

Wolfgang