Adient stress tested

All,

Please find our stress tested analysis on Adient here.

The company today announced that its CFO has fully drawn the US line of the ABL RCF. We think that’s a wise move.

We have modelled a scenario in which Adient lose some 20% of turnover this year, or almost 2 months worth of business. Clearly there will be no full recovery at the end and lower disposable income for most people may hamper any return to normal for not just months, but years.

Thus under this scenario, which assumes most deep disruption ends by the end of summer, the company makes negative EBITDA for the year - despite its 70% variable cost structure and is 10x levered in 2021 on a much reduced EBITDA as lost volume would have recovered only 50%.

Clearly there are better and worse scenarios possible. Overall we like the company. The largest aurtomotive seat manufacturer in the world with 30% market shares has a reason to exist and EBITDA should recover from 2021 onwards. There are no short term maturities and liquidity is ample. 

However, it is still too early to commit to a position in the name as Covid19 scenarios still range quite widely.

Wolfgang