Company Overview: Dana Incorporated (NYSE: DAN) manufactures and designs propulsion and energy-management solutions for almost all mobility markets. The company’s segments include Commercial Vehicle Drive and Motion Systems, Light Vehicle Drive Systems, Off-Highway Drive and Motion Systems, and Power Technologies.

­­­­­­DAN Details

Material Business Updates

Figure 1: Key Items from Press Releases

Company Press Release; Analysis by Kalkine Group

Historical Financial Trend:

DAN illustrated sustainable historical growth until FY20, when DAN experienced short-term disruptions from substantial exogenous factors affecting the mobility industry. The gross profits have manifested a feasible uptrend until FY20 when the top-line shredded to almost FY17 levels. Operating revenues grew at a 5.1% CAGR (FY16 – FY20).

Figure 2: Historical Financial Overview

Source: Company Reports, Analysis by Kalkine Group

Third Quarter FY21 Performance:

Figure 3: Quarterly Performance Highlights

Source: Company Reports, Analysis by Kalkine Group

Full-Year FY20 Performance:

Figure 4: Annual Performance Snapshot

Source: Company Reports, Analysis by Kalkine Group

Top 10 Shareholders:

The top 10 shareholders together form ~52.15% of the total shareholding. Icahn Associates Corporation [Activist] and BlackRock Institutional Trust Company, N.A., hold a maximum stake in the company at ~­­­9.91% and ~9.88%, respectively.

Figure 5: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Metrics:

Revenue took a recent dip due to weaker demand across multiple mobility markets as customers began idling operations in mid-year in response to the COVID-19 pandemic. Considering COVID-19 disruptions, DAN has maintained relatively sustainable topline growth compared to its peers. The current ratio has declined marginally while maintaining prudent inventory control.

Figure 6: Key Financial Metrics

Source: Analysis by Kalkine Group

Outlook:

Latest Industry Update: The currently suppressed end-market inventory levels are expected to drive high consumer demand. DAN is well-poised to leverage cyclical growth opportunities as key risks and challenges facing the mobility industry subside.

Combating High Material Costs: DAN’s manufacturing facility in Sweden shall deliver high cost and operational efficiencies. The US$50 million projects have received US$10.7 million in funding support from the Swedish business development community. The facility shall amplify DAN’s ability to fully integrate e-Propulsion systems and clean-energy technologies across all mobility markets.

Revised Guidance: DAN expects sales to range between $8.8 billion to $9 billion in FY21 with corresponding adjusted EBITDA of $815 million - $875 million. Moreover, the implied adjusted EBITDA margin is expected to clock circa 9.5%, operating cash flows to stand at ~5% of sales and adjusted free cash flow to clock ~1% of sales.

Key Risks:

Supply-Chain Constraints: With the current global supply chain disruptions in place, the industry’s production forecasts for the remainder of FY21 and FY22 are expected to shred.

Labor Shortages: The labour shortages seem to coincide with elevated unemployment rates. Labour shortages at specific facilities have constrained consumer production.

Rising Commodity Cost: Margins have shrunk sharply due to the global semiconductor chip shortage and increased investment towards supporting the electrification strategy.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

DAN has delivered 3-month and 6-month returns of ~-1.802% and ~-15.241%, respectively. The stock is trading below the average of the 52-week low price of US$18.60 and the 52-week high price of US$28.44, indicating an accumulation opportunity. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). The company might trade at a slight discount compared to its peers’ average EV/Sales (NTM trading multiple), considering supply chain constraints, rising input costs, and labour shortages. For valuation, a few peers like Modine Manufacturing Co (NYSE: MOD), LCI Industries (NYSE: LCII), Superior Industries International Inc (NYSE: SUP), and others have been considered. Considering the continuous involvement in the company’s electrification strategy, potential strategic efficiency from Sweden manufacturing facility, prudent inventory management, and potential upside as indicated by the valuation, we give a “Buy” recommendation on the stock at the closing market price of US$21.80, down by ~2.42%, as of 13 December 2021.

DAN Daily Technical Chart (Source: REFINITIV)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.