Ira Sohn London: Julian Sinclair, Chief Investment Officer Talisman Global Asset Management Limited
Trade Idea: 1. Tata Motors Limited (ADR) (NYSE:TTM), 2. Shared appreciation mortgage
Price Target: 1. Tata: 100% upside
Julian Sinclair on Tata Motors
Around 80% of Tata Motors Limited (ADR) (NYSE:TTM) is Jaguar Range Rover. The Jaguar Range Rover brand is worth around $17 billion alone, around the same as Tata’s market cap. Jaguar Range Rover business is only trading at 6 times earnings. Jaguar Range Rover is one of the four great German car brands. On average a Jaguar costs 5 to 10 thousand less than average Mercedes. So, Jaguar Land Rover has the brand, product and low selling price. Volumes of Jaguar Range Rover car sales expected to expand 20% during next five years. Company Capex is peaking, EBITDA margin expected to expand 300-400 bps through 2015. Ebitda and fcf yield expected to be up by 100% and 18% by FY 2015.
Will have to invest in domestic business good play on India. Should have market cap of $30 billion up from around $18 billion currently.
Julian Sinclair on shared appreciation mortgage
Shared appreciation mortgage. House price growth will boost the yield on assets. Very low LTV mortgages which are seasoned not new issues. With house price CAGR of 1% will produce an effective yield of 10.61%. Even in the worst case scenario, CAGR of home prices around -2.5% asset will still yield more than gilts.
Tata Motors Limited (ADR) (NYSE:TTM) owns British brands, transformation at Jaguar India division turns around and growth at Jaguar will drive margins and yield.