Ford Motor Company (F) is probably among the most well-known auto makers in the world. Established in 1903 by Henry Ford, Ford Motors has become a truly global company. The company has near 16% market share in the U.S. and 8% market share in the Europe. Ford has several manufacturing plants around the globe. The Focus, Fiesta and several other brands are produced in the plants distributed across continental Europe. Ford stopped automotive production in the U.K., but it still produces several parts and commercial vehicles within this country. The Transit and Transit Connect models are primarily produced within Ford's Turkish plant in Kocaeli, Turkey.
This plant in Turkey named Ford Otosan (FOVSY.PK), is a joint venture between the Ford Motor Company and the Koc Holding (KHOLY.PK). While its parent company, Ford, was going through tough times, the Ford Otosan company has been an outperformer. Turkey is a pretty dynamic country with comparative advantage in the automotive production. The labor costs are much reasonable compared to the Europe and the U.S. Besides, the domestic tax system has favorable codes for autos and commercial vehicles produced within the country.
There is a strong convergence between the European Union and Turkey in terms of economic power, as well as, social welfare. The vehicle ownership in the country is only 200 per 1000 individuals, which is one third of the European average. The same vehicle ownership number arises to almost 600 in many EU member states. Thus, there is still a large potential for growth. Ford brands have been very popular in the country. According to official statistics, Ford has the third largest share in the Turkish market. Ford company owns 41.04% of Ford Turkey. Ford's Turkish production plant has been a blockbuster among Ford's global factories in terms profitability and dividends. Here is a brief historical comparison of fundamentals:
2007 | 2008 | 2009 | 2010 | 2011/3Q | ||
Revenues | Ford | $172.45 | $146.27 | $118.31 | $128.95 | $101.5 |
Ford - TR | $6.20 | $4.58 | $3.73 | $4.95 | $3.96 | |
Net Profit | Ford | -$2.72 | -$14.67 | $2.72 | $6.56 | $6.55 |
Ford - TR | $0.41 | $0.28 | $0.22 | $0.32 | $0.27 | |
Yield | Ford | 0.00% | 0.00% | 0.00% | 0.00% | 1.83% |
Ford - TR | 8.80% | 14.60% | 15.10% | 9.70% | 10.3% |
Source: Is Yatirim
Due to the desperate cash need of its parent company during tough times, Ford Turkey has been an outstanding dividend payer. Last year, company paid $310 million in dividends, 41.04% of which is taken by Ford. While it may not be a huge number, given Ford's gigantic size, the payments were particularly helpful during Ford's critical conjecture.
I think Ford Company is pretty cheap, but compared to its parent company, Ford's Turkish branch looks like a better deal. Even after losing near 35% in 2011, Ford Motor is trading at a P/B ratio of 7, and debt/equity ratio of 15.9. On the other Ford Otosan is trading at a P/B ratio of 2.7, and debt/equity ratio of 1.1. Actually, the company has near $1.6 billion in liquid assets which pretty much covers its short-term debt of $880 million and long-term debt of $260 million. Compared to its parent company's gigantic debt load, Ford Otosan can be considered as almost debt-free, since all debts are more than covered by cash and inventory at hand.
Similar to other emerging markets, the Turkish exchange market was among 2011's losers. The Turkish (TUR) ETF lost near 40% in this year. However, thanks to its record profits, Ford Otosan was an outperformer, returning 30% in local currency, and 6% in terms of USD. The company has a policy of 100% dividend payout ratio. As of December 27, it is trading at a trailing P/E ratio of 7.6, which translates into an expected yield of 13% for 2012.
Surely, investing in a foreign country has its own risks. The fluctuations in exchange rates can make a huge difference in returns. This year, Turkish Lira lost near 25% against USD, and is trading at a 52-week high exchange rate of 1.90. A year ago that rate was between 1.4 - 1.5. Nothing significant has changed in between -- other than 10% inflation in Turkey. Therefore, I think that the TL/USD exchange rate is primed for a normalization to a 1.6 - 1.7 range. So, even if the stock does not perform well in 2012, you are very likely to make some profit due to appreciation in the local currency.
Summary
I think Ford is great, and is primed for a rebound in 2012. Income-oriented investors might also consider Ford Otosan as it offers a strong dividend. It can be great long-term play for dividend lovers. Note that, individual shareholders are subject to 15% dividend-income tax which may or may not be claimed for tax credits.
Disclosure: I am long FOVSY.PK.
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