Cantillon Deep Value · 21 October 2026 ★ United States ★ Track A

Motorcar Parts: the profit the banks keep

A remanufacturer of alternators, starters and brakes for the big US auto parts chains, at about five times operating profit and below book value, down a third since the spring. The screen flagged it as one of the cheapest names in the US. This issue follows the profit from the operating line to the shareholder.

The Conclusion, Before Anything Else

Is it cheap on adjusted, normalised figures?	Members
Is the balance sheet safe enough?	Members
Do the accounts survive the forensic pass?	Members
Is there a catalyst with a clock?	Members
Is management aligned, and will value reach minorities?	Members
Is it liquid enough to enter and to leave?	Members
Does it clear the return hurdle for its tier?	Members
Do I hold it?	Members
Current action	Members

Eight questions, one action. The answers are members-only, because the answers are the report.

The Setup · A Cheap Multiple and a Slow Payer

On the usual screens Motorcar Parts looks like a gift. Enterprise value to operating profit near 5, price below book, sales up in every one of the last eight years, and a stock that fell from about $15 in the spring to around $10 after a loss-making quarter. It ranks near the top of any US small-cap value list, which is exactly why it is worth checking slowly.

The question this issue asks is not whether the business sells more every year. It does. It is how much of what it earns ever reaches a shareholder.

1 · The Thesis Cheap + Good + Catalyst, Tested

The cheap multiple is measured at the wrong line. Operating profit is real. But the company's biggest customers pay very slowly, so it sells its invoices to banks early, and the discount it pays for that is a cost of doing business with them that never stops. Add that back to the "debt" and take it out of the profit, and the picture changes. The work below does exactly that.

2 · The Business

Motorcar Parts takes worn alternators and starters back from repair shops, rebuilds them, and sells them again through the big auto parts chains. It also sells new brakes, power-steering parts and test equipment. The rebuilt-part model needs the old part back, so the chains return "cores", and the company carries both the cores and a large stock of finished parts on its books.

Its customers are few and powerful. In fiscal 2026 the three largest took 85% of sales, and the largest alone 42%. 4,900 of its 5,600 staff are in Mexico, where most of the rebuilding happens. Fiscal 2026, the year to March, was its best in years: sales of $789.8M and operating profit of $65.8M.

3 · Why It's Overlooked

It is not overlooked so much as mis-measured. The headline ratios every screen uses stop at operating profit. Most of what this company pays to finance its customers sits below that line, and the invoices it sells are not shown as debt. So the screens see a cheap, lightly indebted business. Two value funds hold just over 6% each, which suggests professional investors see the same thing.

The fair criticism of this issue: management guides to a much better year, with new business it says is already won. If that lands, the numbers here will look too harsh. Section 7 gives that case its full weight.

4 · The Other Side The Bull Case, Argued Properly

The steelman long. Cars on US roads are older than ever, which means more alternators and brakes need replacing every year, and this company is the leading rebuilder. It has grown sales every year for eight years. A competitor's troubles have handed it more than $100M of new annual business, starting in the second half. The banks are charging less to buy its invoices than a year ago, and every point off that rate goes straight to profit. Management guides to operating profit of $86M to $91M this year. On that, the shares trade at about six times earnings. The loss-making quarter was timing, not a trend.

Who is selling, and are they stupid? Growth money that bought the guidance and got a loss instead. And one senior executive, who sold his entire holding of 14,074 shares at $15.03 in July. No insider has bought on the open market in the period checked. That is not proof of anything, but it is not the signal a value buyer wants either.

The Variant Perception

The screens believe this is a cheap, lightly indebted grower. I believe it is a fairly priced, heavily financed one, because the cost of carrying its customers is a permanent part of the business. The gap would close in the bull's favour only if that financing cost shrinks and stays small. Nothing in the last ten years says it will.

Members Content

The Verified Numbers, the Targets, the Timing and the Size

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What Happens Next

Publishing an idea starts the coverage, it does not end it. For this name: an earnings note within 72 hours of every result, an update on each checkpoint date whether or not anything happened, a timing alert within 24 hours if the gate flips, and an exit note if the thesis breaks, published whether or not it lost money. Every position is tracked in the open in the Deep Value Portfolio under a published track record method.

Legend

Adjusted net cash: cash and investments minus total debt and minus anything that is not genuinely free (restricted cash, customer deposits, pension deficits, operating cash needs). EV (enterprise value): market value minus adjusted net cash. What you actually pay for the business. EV/EBIT: enterprise value divided by operating profit, on normalised earnings. Normalised: earnings adjusted to a mid-cycle level rather than a trough or a peak. ROIC: return on invested capital, how much profit the business makes on the money tied up in it. Expected IRR: the probability-weighted annual return across the three scenarios. Timing gate: whether the chart says buy now, start partial, or wait. IVT: Institutional Volume Terminal, the chart overlay used in section 10. AVWAP: anchored volume-weighted average price, roughly the average price institutions have paid since a chosen point. Receivable discount program: an arrangement where the company sells its customers' unpaid invoices to a bank before they are due, for a little less than face value. Cores: the worn parts returned by customers so they can be rebuilt. Paid in kind: interest paid by adding to the amount owed rather than in cash.

Cantillon Deep Value is research and education, not investment advice. Nothing here is a recommendation to buy or sell any security. Thesis-critical figures are verified against primary filings before publication and the verification log is shown in section 5; figures that could not be verified are labelled as estimates. Disclosure: the author holds no position in Motorcar Parts of America, did not hold one before publication, and will not trade it within three trading days of publication. No trading takes place in a covered name within three trading days either side of publication. No compensation is received from any covered company. Companies financed through their customers' invoices carry interest-rate risk that does not show up as debt. Do your own diligence. On companies this size, the filings are the final word.