Dissecting the report

The half-year results showed that revenue jumped 15.1% to €1.8bn from the same period last year. This helped to filter down to the bottom line, with adjusted net income of €62.5m versus €29.4m previously.

What impressed me is that the growth wasn’t a fluke from a one-off event or single-division outperformance. The company is global, and growth came from all areas. For example, vehicle production units grew by a minimum of 9.9% across North America, Europe, Africa and Asia Pacific.

The dividend jumped from one cent last year to 2.3 cents per share. This is a large increase and one that income investors will be cheering. Given the size of the profits generated, the dividend cover is comfortably high. This means that the payment won’t put any undue pressure on cash flow for the second half of the year.

Despite all the good news, it’s worth noting that the business does still have risks. It spoke of being “mindful of the ongoing uncertainties and the forecast for modest global economic growth”. This is a point to keep in mind that could negatively impact future results.

Why the stock could rally further

The business reviewed its capital allocation policy, with the results meaning that things could be more lucrative for investors going forward.

For example, the increase in dividend is something that should continue in the future. It said that “with immediate effect the group intends to adopt a progressive dividend policy.” It was already due to pay out €35.0m for 2023. This is a huge jump from the €13m from last year, and one that should increase in 2024. This policy could see dividend hunters jumping on the bandwagon, pushing up the share price.

Good relative value

Another factor that should support share price growth is the relative valuation. TI Fluid price-to-earnings (P/E) ratio was 19.91 as of this morning. This might not seem that cheap by itself. Yet in the sector, the two main competitors are AB Dynamics (P/E 115) and Akwel Automotive (P/E 38). From this I can see that TI Fluid is relatively cheap and could have room to increase in value based on the sector.

That sector is niche, and this represents another risk to buying the stock now. Yet if I include it as part of a broader diversified portfolio, I think the risk should be manageable. As a result, I’m thinking about buying it shortly.

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I already own the following UK shares in my investment portfolio. And at current prices I’m thinking about buying more of both. Here’s why I plan to own these top stocks for the next decade.

TI Fluid Systems

Tough trading conditions have smacked profits at car builders and auto component builders in recent times. TI Fluid Systems (LSE:TIFS) — a UK share that I currently own — has been a big casualty of car plant shutdowns during the pandemic and chip shortages in the recovery that have limited motor production.

The company’s share price has tumbled 60% during the past 18 months. But excellent trading news last week suggests now could be a good time to increase my stake.

TI Fluid Systems manufactures hardware that carries and holds fluids inside your car. We’re talking about fuel tanks, brake lines, coolant modules, and multiple other critical parts that make travel possible.

It’s just announced that revenues jumped 14.9% (at constant exchange rates) in the first quarter, driven by product launches and inflationary recoveries. The result was especially impressive given that global light vehicle production rose by just 5.7% between January and March.

The company’s share price rocketed following Wednesday’s market update. Yet at current levels it still offers excellent value for money.

City analysts think annual earnings here will rise 127% in 2023. This leaves TI Fluid Systems trading on a forward price-to-earnings (P/E) ratio of just 7.3 times.

Brokers are tipping double-digit profits growth through to the middle of the decade, too, as the car industry bounces back. It’s also because sales of electric vehicles (EVs) look set to surge.

EVs provides exceptional growth possibilities for TI Fluid Systems. This is because the amount of fluid-related content in battery- and hybrid-powered vehicles is far higher than in those running on internal combustion engines. As build rates boom, this FTSE 250 company could see sales volumes balloon.

A fresh downturn in the auto market could disrupt these bright profits forecasts. But on balance I think this growth share remains a top buy.

Legal & General Group

Legal & General (LSE:LGEN) is the most recent addition to my Stocks and Shares ISA. Its excellent all-round value means I’m already thinking about building my position.

The FTSE 100 firm trades on a forward P/E ratio of 6.9 times. Meanwhile its dividend yield sits at a massive 9% for 2023.

I’m tipping Legal & General’s profits to soar over the next decade. As a major provider of retirement products like pensions and annuities it’s well placed to capitalise on rapidly-growing elderly populations.

I’m also expecting demand for investment management services to ramp up significantly. This will be driven by rising life expectancies, increasing emerging markets wealth, and growing interest in non-traditional investment products.

Legal & General operates in a highly competitive environment. But the company’s formidable brand power helps to mitigate this threat. I believe the firm will deliver excellent investor returns during the next decade.

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Essential parts for EVs

TI Fluid Systems designs, manufactures, and sells fluid storage, delivery, and thermal management systems for automobiles. These parts and components are essential for all automobiles to help them operate successfully.

So what’s happening with TI Fluid Systems shares? Well, as I write, they’re trading for 128p. At this time last year, the stock was trading for 242. This is a 47% decline over a 12-month period. It is worth noting many FTSE stocks have pulled back in recent months due to economic volatility and the tragic events in Ukraine.

The bull and bear case

To start with some positives, I believe TI has some defensive capabilities. This is because its products are essential in all vehicles, not just EVs. Unless there is some cutting edge technology around the corner that means cars will no longer require fluid storage, transfer, or thermal management, its products should be needed for many years to come.

In addition to this, the EV boom could come at the perfect time for TI to help boost growth. Recent statistics showed that the EV market is a burgeoning one in the UK, and worldwide. According to the International Energy Agency, EV adoption has surged since the pandemic. Furthermore, there is a chance with EV adoption playing a major part, net zero emissions could be achieved by 2050.

Finally, at present, TI shares would boost my passive income stream through dividends. The current dividend yield stands at 1.7%. This is slightly less than the FTSE 250 average of 1.9%. I am aware that dividends are never guaranteed, however.

To the bear case of TI Fluid shares. Firstly, growth from the EV sector may be a long way off. This is because the EV market has been hampered by the semiconductor shortage. To provide some context, semiconductors are essential parts in EVs. Furthermore, EV adoption in developing countries is taking longer compared to developed countries. This is linked to higher costs of infrastructure and the price point of EVs.

Next, at present TI Fluid shares have come under pressure from macroeconomic headwinds. These include soaring inflation and the rising cost of materials. Higher materials costs for its operations could eat into profit margins which affect growth initiatives as well as shareholder returns.

A FTSE 250 stock I’m going to monitor

To summarise, I believe TI Fluid Systems is in a great position to benefit from the EV boom, as well as the current automobile market. Current headwinds, as well as issues in the EV market are putting me off, however.

Right now I am going to keep TI Fluid Systems on my watch list, and monitor the developments in each of the areas mentioned above. I may change my stance later, once I know more and see if any of the issues pushing the shares down begin to subside.

The post Should I buy this FTSE stock to benefit from the EV boom? appeared first on The Motley Fool UK.

I fear that the rout might not be over either as the global car industry struggles and cost pressures persist. Both Tesla and Toyota have cut production further in recent days due to Covid-19 lockdowns in China and continued supply chain problems. TIFS’s share price has slumped amid fears of prolonged damage to auto output.

But I continue to believe it has an extremely bright future as electric vehicle (EV) sales boom. And over the long term I expect its share price to rise strongly.

Riding the EV revolution

TI Fluid Systems supplies components that store and carry fluids, parts that are used in greater quantities in battery electric vehicles (BEVs) and hybrid electric vehicles (HEVs) than those with internal combustion engines. So it stands to be a big winner as demand for these cars explodes.

I’m encouraged by the rate at which TIFS is winning business with EV manufacturers. Last year it won “significant HEV and BEV programmes with multiple customers across all major production regions,” it said.

The business signed contracts worth €1bn of lifetime revenues in the field of BEVs alone in 2021. This represented almost a third of all its contract awards last year.

Impressively resilient

I think an argument can be made that TI Fluid Systems’ shares have been oversold given how resilient trading has remained in tough conditions. This is thanks in large part to the firm’s ongoing ability to outperform the global light vehicle market.

Revenues here rose 5.6% year-on-year in 2021, to €3bn, latest financials showed. Meanwhile margins increased 1% to 7.2%. As a result pre-tax profit jumped 35.7% from the prior year to €109.5m.

The strong showing was “achieved in the face of lower production volumes, global supply disruptions, labour shortages, rising costs, and volatile customer orders,” it said. The business added that its large profits increase “demonstrate the resilience of our business and our ability to successfully manage through difficult market conditions.”

Is the share price set to explode?

I’m actually tempted to increase my holdings in the company given the cheapness of its shares. City analysts think earnings will rocket 78% year-on-year in 2022. They think profits will rise an extra 50% next year as well.

As a consequence TI Fluid Systems trades on a forward price-to-earnings growth (PEG) ratio of 0.1. Any reading below 1 suggests that a stock could be undervalued. And this particular stock clearly looks especially cheap.

TIFS’ next results are due on 18 May. I think this could be the catalyst that drives the company’s share price higher again.

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What’s behind today’s drop?

On Thursday, TI Fluid shares slid as brokerage Jefferies downgraded the stock to “hold” from “buy”. The US investment bank also slashed its price target to 195p from 350p, representing a substantial change in its assessment of the UK firm.

Jefferies contended that the conditions being faced by the automotive parts maker were among the most difficult in its coverage. The bank added that it expects 2022 will be be “another highly challenging year“.

Jefferies also stated that TI Fluid will struggle to recover rising raw material and inflationary costs from customers versus previous expectations. It is not convinced about expectations that TI Fluid Systems will be able to benefit as much a some believe from the growth in vehicle electrification either. Jefferies said that the expectations on electrification upside “may be too high”.

On a positive note, it said that the long-term equity story remains attractive.

Risks for TI Fluid Systems

TI Fluid Systems designs, manufactures, and sells fluid storage, carrying, delivery, and thermal management systems for predominantly light vehicles, such as cars. All vehicles need these products to work. As such, you’d imagine that demand for the products it designs and sells is fairly inelastic.

However, it’s not been an easy year for the vehicle sector. The current semiconductor shortage has caused havoc for car manufacturers. Just try getting hold of a new car in the UK right now, it’s really not easy.

Electric vehicles also require more of the products that the firm designs. As such, the company, in theory, should benefit from the increased production of electric vehicles in the coming years (despite the Jefferies view). But in the short term, EV production has also been hampered by the semiconductor shortage.

It is also apparent that inflation and raw material costs appear to be weighing on the company’s share price.

Prospects for TI Fluid Systems

As noted by Jefferies, the long-term prospects for this firm look good. In the long run, the trend toward electrification of motor vehicles should stimulate further demand, albeit perhaps not as much as previously anticipated, according to Jefferies.

However, revenue is yet to reach pre-pandemic levels and the same goes for profit. The manufacturer posted a pre-tax profit €65.9m for 2021 compared with €50.8 million for the year earlier.

The company noted the difficulties of the operating environment but said the number highlighted the business’s resilience.

The dividend yield certainly isn’t particularly attractive, but I’m quite interested by the long-term prospects of this company. It’s a stock I’m looking at buying for my Stocks and Shares ISA.

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Automobile essentials

TI Fluid Systems designs, manufactures, and sells fluid storage, carrying, delivery, and thermal management systems for vehicles. All automobiles require such products to help them operate, therefore the products TIFS’ designs and sells are essential. Demand from automobile makers should help boost growth in the years ahead.

As I write, TIFS shares are trading for 234p. At this time last year, the shares were trading for 242p, which is a slight drop of 3%.

UK shares have risks

I must note the risks of investing in TIFS. Firstly, the current semiconductor shortage, essential parts in EV vehicles, has meant there has been a huge backlog of new cars not being produced. This could affect revenues and performance ahead. In addition to this, the current supply chain crisis has affected the TIFS share price and recent performance, despite decent demand for products.

I view both of these risks as short- to medium-term issues that could hinder TI Fluid Systems investment viability. I invest for the long term so these issues don’t worry me too much, but I will keep an eye on developments.

Why I like TIFS

TIFS could be well placed to benefit due to its products being essential in all cars, especially in EVs. Electric vehicles especially, require more of the products that TIFS designs as they don’t operate with the traditional combustion engine.

According to recent stats compiled by Heycar.co.uk, the EV market is booming. Sales increased by 186% in 2020 and, as of today, there are an estimated 370,000 EVs on the road in the UK. There are also 710,000 plug-in hybrids. Growth in the years ahead, in the UK alone, is to accelerate due to the ban on new petrol and diesel cars being manufactured after 2030. The UK government has also invested in many new charging points throughout the country too. It is predicted EVs will outsell petrol and diesel vehicles by the end of 2022.

TIFS shares currently look cheap with a price-to-earnings ratio of just 19. In addition to this, the shares offer a dividend that would make me a passive income from my holdings. UK shares that make me a passive income are firmly on my radar. TIFS sports a dividend yield of just over 2%.

Finally, recent and historic performances has been good, although not a guarantee of any future performance. Looking back, prior to the pandemic-affected year of 2020, revenues were consistently above £3bn for three years. Coming up to date, a post-close update released yesterday, confirmed revenue for 2021, the year ending 31 December 2021, should be above £3bn, up from 2020 levels.

Overall, I think TI Fluid Systems could be a good UK share for my holdings. At current levels it looks cheap, and has a good track record of performance. Most importantly for me, its products are essential to the advancement of the burgeoning growth market that is EVs.

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And for me, one of the key components of the case for investing in the stock now is last autumn’s appointment of a new chief executive. Hans Dieltjens parked his cardboard box of possessions on his new desk in October 2021.

New blood, new growth?

I’m a big fan of new blood pumping into the management team of an established business. New leaders often bring with them energy and a determination to make their mark and succeed. And in this case, it seems clear Dieltjens’ main task is to drive the business forward into its new phase of growth.

The enterprise has been around in various forms for about 100 years. But it has grown — a lot. And now the company concentrates on manufacturing automotive fluid storage, carrying, and delivery systems for light vehicles. For example, things such as brake and fuel lines. And products for thermal applications, fuel tanks and other applications.

Since joining the stock market in 2017, the business has performed erratically with weakness in the profit figures and a volatile share price. However, I’m encouraged by the positive tone in today’s post-close trading update. It covers trading in 2021, but we’ll get even more detail with the full-year results report due on 15 march 2022.

The company said the financial performance of the business has been “robust”. And that’s despite market headwinds such as microchip shortages, supply chain disruptions, and volatile customer demand. The directors expect to report constant currency revenue for the year of around €2.95bn. And revenue growth will likely have exceeded global light vehicle production growth by about 3% — suggesting TIFS has been winning market share.

Despite cyclicality, I’d buy the stock for growth

Meanwhile, cash flow generation has been “strong” and in line with the directors’ previous expectations. And City analysts are upbeat about the company’s immediate prospects. They’ve pencilled in an uplift in earnings per share for 2022 of almost 70%. But I admit such an increase will only take earnings close to where they were in 2019. Indeed, the arrival of the pandemic proved the high element of cyclicality in the business model because revenue and earnings plummeted during 2020. And cyclicality is a risk worth me keeping an eye on going forward.

However, with the share price near 244p, the forward-looking earnings multiple is just over 11 when set against analysts’ expectations for 2022. And I see that valuation as undemanding. Meanwhile, the share price is close to its level from 2017 when the stock first arrived on the stock market.

The stock performance has been underwhelming and there are no guarantees that it won’t continue to be so. However, I’m encouraged by the appointment of the new chief executive and other high-level executives. And by the company’s prior statements about the firm’s determination to accelerate its EV strategy. I’d buy the stock now for growth.

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TI Fluid Systems (LSE: TIFS) is one I’m thinking of loading up on for my Stocks and Shares ISA following recent price weakness. In fact it’s a UK share I already own, one I purchased to try and make the most of the electric vehicle (EV) revolution. This business produces all sorts of fluid-carrying components that major autobuilders need. And encouragingly pure-play EVs and hybrid vehicles require far higher loadings of this tech than cars with internal combustion engines.

Riding the EV revolution

Demand for EVs is soaring as consumer concerns over the climate crisis worsen. It looks set to continue rocketing too. The International Energy Agency (IEA) reckons there will be 145m EVs on the world’s roads by 2030. That compares with the 11m in existence last year. And major carmakers are doubling-down on spending in this area to grab a slice of the action (not to mention enhance the green credentials of their brands).

Japan’s Nissan is the latest major name to announce plans to turbocharge investment in EVs. The carmaker will invest ¥2trn over the next five years and bring out 23 electric models by 2030, it announced on Monday. The rewards for TI Fluid Systems, which already supplies parts to Nissan, could be huge as carmakers steadily make the switch from traditional engines.

Supply chain strains

Like many other UK shares, the TI Fluid Systems share price just closed at its cheapest for more than a year on fears over the Omicron variant and what this could mean for car demand and automotive supply chains.

In truth though, worries over supply chain issues in the industry — and what this could mean for TIFS’ product in the near term — have been steadily growing for some time. Consequently the company’s price has been locked in a downtrend since the end of the summer. A near-20% decline in light vehicle production between July and September dragged revenues 14.7% lower at constant currencies.

Too cheap to miss?

It’s my belief, though, that this weakness represents a great dip buying opportunity. At current prices of 221p per share this cheap UK share trades on a price-to-earnings (P/E) ratio of just 9.2 times for 2022. TI Fluid Systems also offers up a meaty 3.1% dividend yield for next year. This smashes the broader forward average of 2% for FTSE 250 shares.

Its true that profits could disappoint if shortages of key parts continue to hit car production. Some industry experts, like the head of Mercedes-Benz, have suggested the problem could persist into 2023. Still, I think the firm’s brilliant long-term outlook — one closely tied to the EV revolution — still makes it one of the best cheap UK shares for me to buy today. 

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Sales projections for the EV market are nothing short of show-stopping. The experts at Statista, for example, reckon there will be 116m electric cars on the world’s road by 2030. Compare that to the 8.5m that were running last year.

Soaring demand for low-emissions vehicles leaves plenty of opportunities for UK share investors like me to make some decent cash. Here are two top-quality EV stocks I’d buy right now.

An electric vehicle stock I already own

TI Fluid Systems (LSE: TIFS) is actually a UK share I already own. It makes a wide range of car components like brake lines, fuel tanks and air conditioning tubes which it supplies to major automakers. And it’s doing a roaring trade at the moment as electric and hybrid vehicles require higher loadings of its products than combustion-engine-powered cars.

The business has put electrification front and centre of its growth strategy, and in the third quarter it racked up €232m worth of contract awards. It looks well on course to have its content loaded on more than half of key battery-powered vehicles in Europe and North America between 2020 and 2028.

However, TIFS isn’t having things all its own way at the moment. Microchip shortages and supply chain issues caused global light auto production to drop almost 20% in the third quarter. Consequently, revenues at this business slumped 14.7% year-on-year. These problems could persist for some time too.

However, I’m encouraged that TI Fluid Systems’ focus on electric vehicles has enabled it to outperform light vehicle output by such a colossal margin in recent months. It illustrates how this electric vehicle stock could outperform other auto-related shares as ‘clean’ vehicle sales rocket over the next decade.

Why I’d buy Tesla shares

As we’ve just seen again, the Tesla Motors (NASDAQ: TSLA) share price is highly sensitive to Tweets from its enigmatic founder and CEO. On this occasion, Tesla’s share price has sunk in premarket trading after Elon Musk asked Twitter users if he should sell around 10% of his stock in the company.

This unpredictability clearly creates danger for Tesla shareholders. But, as a long-term investor, I’m still thinking of buying the US carmaker for my portfolio. This is because, even accounting for periods of severe share price volatility, I reckon the Tesla share price should still rise solidly in the decade ahead.

Tesla is a market leader in the EV space, putting it in the box seat to ride the green motoring revolution. But, of course, Tesla is more than just a great EV stock. I also think its leading self-driving tech will help it make gigantic profits from the upcoming boom in autonomous driving. I believe Tesla has the vision and the brand power to make the most of the motoring revolution.

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The parts producer has slumped in value recently due to the supply chain crisis that’s hampering global car production. But as someone who buys shares with a long-term view, I think this weakness represents an attractive dip-buying opportunity.

TI Fluid Systems trades on a price-to-earnings growth (PEG) ratio of just 0.2 for 2022. A reading below 1 suggests a stock could be undervalued, according to traditional investing theory.

TI Fluid Systems is a major parts supplier to the world’s biggest motor manufacturers. Its content is likely to be found in almost 100 key battery-powered vehicles coming to market between 2020 and 2028. And it continues to stack up major contracts with carbuilders to solidify its key role in the EV revolution. This is a UK stock I think is set to thrive in the next decade.

Having your cake…

Yellow Cake (LSE: YCA) is another ultra-cheap UK share I’m looking at. This business purchases uranium from mining companies and stores it before selling it on. I think it’s a great way to play the theme of growing global energy demand then.

Around 50 nuclear reactors are currently under construction across the world, according to the World Nuclear Association which, when completed, will take the total number close to 500.

Uranium production has been steadily falling in recent years. Indeed, output in the US recently hit its lowest since records began in the late 1940s. But production is tipped to rise over the next few years at least as market fundamentals improve (analysts at GlobalData think output will rise at a compound annual growth rate of 6.2% through to 2025).

This has the potential to weigh on prices of the commodity and, by extension, hit Yellow Cake’s profits. And especially if a raft of new mines are drawn up to come online to exploit the demand boom.

Another dirt-cheap UK share on my radar

At the moment though, there’s a wealth of information suggesting these supply increases will fail to keep pace with rises in demand through to 2035, at least. The switch from power plants that burn fossil fuels, along with the construction of new nuclear-powered ships and submarines across the globe, should all supercharge demand for the radioactive material.

At current prices Yellow Cake trades on a price-to-earnings (P/E) ratio of 2.7 times for fiscal 2022. I think this could make it too cheap to miss. And particularly when you consider that Yellow Cake allows me to play the uranium market without being exposed to the exploration, development and production risks which investors in pure uranium miners have to endure.

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