Credit ratings specialist Moody’s has raised its outlook on Nexteer to stable from negative.
“The outlook change to stable on Nexteer reflects the recovery in its revenue and margins from the trough of the pandemic, and our expectation that the company will grow its revenue and lower its leverage over the coming 12 to 18 months,” said Gerwin Ho, a Moody’s senior credit officer.
“The ratings affirmation reflects Nexteer’s track record of sustaining its strong credit and business profile as a steering systems provider, with its robust metrics and sustained net cash position providing a buffer against market volatility due to the economic slowdown amid the coronavirus outbreak.”
Moody’s expects global light vehicle unit sales to recover 7.0% in 2021 versus a year ago and to grow by a further 6.1% in 2022. As a result, it expects Nexteer’s revenue to increase about 8% year on year in 2021.
The EPS business which made up 68% of Nexteer’s revenue in 2020 will continue to drive sales over the next 12-18 months, because of gains in market share and the increasing penetration of EPS in developing auto markets, such as China and Brazil.
At the same time, Moody’s forecasts Nexteer’s profitability as measured by its adjusted EBITA margin to recover to about 5.1% in 2021 from about 4.0% in 2020 as global auto sales rebound.
Moody’s projects the company’s debt leverage will improve to about 1.0x in 2021 from about 1.3x in 2020 as EBITDA rises on the back of recovering global auto sales.
Moody’s expects Nexteer will continue to grow its revenue scale over the next three to five years, accompanied by a gradual improvement in customer and geographic diversity. Nonetheless, Moody’s expects Nexteer’s revenue exposure to North America, which reached 63% in 2020, to remain high during the same period.
Nexteer’s rating continues to benefit from its 24% effective stake ownership by Aviation Industry Corporation of China (AVIC), which provides Nexteer with customer introductions, business partnership introductions and the facilitation of funding access.