GM - Valens Credit Report - 2022 05 31
Cash bond markets are overstating GM's credit risk with a YTW of 5.206% relative to an Intrinsic YTW of 3.796%, while CDS markets are materially overstating credit risk with a CDS of 239bps relative to an Intrinsic CDS of 84bps. Meanwhile, Moody's is accurately stating the firm's fundamental credit risk, with its Baa3 credit rating one notch lower than Valens' IG4 (Baa2) credit rating.Incentives Dictate Behavior™ analysis highlights positive signals for credit holders. Management's compensation metrics should focus them on all three value drivers: asset efficiency, margins, and top-line growth, leading to Uniform ROA expansion and increased cash flows available to service debt obligations. Moreover, management members have low change-in-control compensation relative to their average annual compensation, indicating they are unlikely to seek a sale or pursue a buyout firm, reducing event risk for creditors.
Valens qualitative analysis of GM's Q1 2022 (04/26/2022) earnings call highlights that management is confident they can ramp up EV launches, they are opening another battery plant in the United States, and that they launched their affordable Equinox EV. In addition, they are confident they have been successful at offsetting cost pressures and that used vehicle prices are modestly lower. Moreover, they are confident they will secure essential nickel supply agreements and will continue reducing the development time for EVs.
General Motors designs, builds and sells trucks, crossovers, cars and automobile parts. The company also provides automotive financing services through its subsidiary, General Motors Financial Company, Inc. (GM Financial). GM Financial provides retail loan and lease lending across the credit spectrum. GM Financial provides commercial lending products to dealers including new and used vehicle inventory floorplan financing and dealer loans, which are loans to finance improvements to dealership facilities, to provide working capital, and to purchase and/or finance dealership real estate. Other commercial lending products include financing for parts and accessories, dealer fleets and storage centers.
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- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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