COOPER-STANDARD HOLDINGS INC COSH
October 17, 2011 - 5:34pm EST by
ithan912
2011 2012
Price: 39.50 EPS $7.25 $7.25
Shares Out. (in M): 23 P/E 5.4x 5.4x
Market Cap (in $M): 898 P/FCF 5.3x 5.3x
Net Debt (in $M): 354 EBIT 235 235
TEV ($): 1,252 TEV/EBIT 5.3x 5.3x

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Description

Investment Thesis

Cooper- Standard Holdings ("COSH") is a leading supplier globally of body sealing, fluid systems and anti-vibration systems for the auto industry.  It is traded currently on the OTCBB and has recently hired bankers to consider strategic alternatives, mostly likely a sale or IPO listing.  The company is growing in all areas, has strong market positions globally, benefiting from BRIC market expansion, a strong balance sheet and in the sweet spot for stricter fuel economy and emission standards.  The company at 3.5x 2011 EV/EBITDA is valued well substantially below peer valuations of 5.6x, even though it has less capex needs as well as a listing or sale in the near future.  The main holders Silver Point, Oak Hill, Cap World, MSD, Apollo all are incentivized post the 2009 reorg to exit or get better liquidity in the stock, which I expect in the next 6 months, likely narrowing the valuation gap and yielding 45-70% upside.  

Business

Based in Novi, MI, COSH manufactures fluid handling, body sealing and anti vibration systems ("AVS") used in vehicles and light trucks developed by global OEMs, as well as for replacement markets.  COSH designs and manufacturers in the regions in which it sells, operating in 18 countries with 66 manufacturing locations and 9 design & engineering offices.  It has products in nearly all top 20 models in the US and Europe, and is the largest body sealing system provider in the world.  COSH believes it is also the 2nd largest fluid handling manufacturer and one of the largest AVS providers in North America.

From the 2010 10-K, its segments include:

Body Sealing
- Make extruded rubber and thermoplastic sealing, weather strip assemblies and encapsulated glass products to protect vehicle interiors from weather, dust and noise intrustion.   

Anti-Vibration
- Engine and body mounts, dampers, isolators, springs, stamped or cast metal products and rubber products, used to control and isolate noise and vibration in a vehicle to improve ride and handling.

Fluid Handling
- Pumps, tubes, hoses, connectors and valves used to control, sense, measure and deliver fluids and vapors throughout the vehicle.

COSH holds over 300 patents on some of its technologies and process methods.  It spends quite a bit on R&D to keep and enhance its market positions, $68.8mm in 2010 & $62.9mm in 2009, and I expect that to increase to its pre-reorg levels of $80mm+ this year and going forward.

The company has done an enviable job navigating its raw material cost volatility.  Headwinds recently for the industry were increases in rubber, oil and fabricated metal prices, but COSH has kept its gross margins intact with cost cuts, sourcing optimization and higher volumes.

According to IHS Automotive, light vehicle production in Q22011 was +3.8% in North America/Europe and expected to increase 5.6% in Q32011.

Customers

In 2010, the breakdown of sales to major customers was:
Ford 28%
GM 16%
Fiat 7%
Volkswagon/Audi 6%
Chrysler 6%
Top 5 total 63%

Renault/Nissan, Peugeot, BMW, Daimler, Porsche, Toyota, Visteon, top India/China OEMs are also customers.


Balance Sheet & Liquidity

Post reorg, COSH has $450mm 8.5% Senior Notes due 12/2018.  In addition, it has access to a $125mm ABL Facility, LIBOR+325-375, $42mm of which is outstanding as of 6/30.
 
6/30/11 Cash was $313mm, and its working capital was north of $500mm

As of 12/31/10, its pension obligations exceeded assets by $166mm, which I added to net debt.

7% cumulative preferred stock - 1.051mm shares out as of 6/30/11.  Issued as part of reorg backstop.  $131mm value as of 6/30/11, convertible into 4.381mm shares.

18.344mm shares of common out but with stock near $40, makes sense to include preferred dilution so using 22.73mm shares.

Expects $105-115mm in 2011 capex and $25-30 in tax.  D&A $120mm

Owns 47 manufacturing facilities globally, 23 in the US.  Have not done extensive analysis yet on the current value of these facilities.  

Valuation
 
Company guidance for 2011:

Revenue - $2.8-2.9mm
 
Volumes - US 13.9mm and Europe 20mm
 
Adjusted EBITDA implied - $355-370mm

Market cap with pref included:  $898mm
 
Net debt with pension included:  $354mm
 
Enterprise Value:  $1,252mm

2011 EV/EBITDA = 3.4x - 3.5x


Conservative estimate of 2011 free cash flow:

EBITDA $355mm
Int exp $40mm
Tax $30mm
Capex $115mm
FCF=$170mm, 19% yield on equity.

Net Income of $165mm assuming 15% tax rate, yielding EPS of $7.25, or 5.44x P/E
 
Comps trade at an average of 5.22x EV/2011EBITDA and 10.65 2011 P/E, per the table below:

 

 


 

 

 

 

LTM

EV/LTM

11E

11E EV/

12E

12E EV/

Company Name

Symbol

Price

Shares

Mkt Cap

Net Debt

TEV

EBITDA

EBITDA

EBITDA

EBITDA

EBITDA

EBITDA

TRW Automotive

PRQ

         $39.21

     123.72

            $4,850.98

                  $750.00

      $5,600.98

      $1,803.00

        3.11

      $1,802.00

              3.11

     $1,888.60

                2.97

BorgWarner

BWA

         69.16

      109.61

            7,580.63

                1,150.00

      8,730.63

          951.40

       9.18

      1,072.00

             8.14

      1,254.60

                6.96

Genuine Parts

GPC

          54.21

      156.76

            8,497.96

                     (7.00)

      8,490.96

         921.88

       9.21

       1,015.86

            8.36

     1,082.00

                 7.85

Goodyeard Tire & Rubber

GT

          11.83

    244.36

            2,890.79

              4,020.00

       6,910.79

      1,642.00

       4.21

       1,810.00

            3.82

     2,103.00

                3.29

Lear Corp

LEA

         47.33

     103.87

              4,916.17

              (980.00)

       3,936.17

         910.20

      4.32

       1,051.80

             3.74

      1,148.82

                3.43

Tenneco Inc

TEN

         31.26

       60.21

             1,882.07

                1,130.00

       3,012.07

         558.00

       5.40

         619.80

            4.86

        722.09

                 4.17

Dana Holding

DAN

          12.85

     146.99

             1,888.85

                 900.00

       2,788.85

        639.00

      4.36

          777.00

             3.59

        878.00

                 3.18

Wabco Holdings

WBC

        42.39

        67.17

            2,847.34

                      9.00

      2,856.34

        393.00

       7.27

         485.20

             5.89

         518.80

                  5.51

Cooper Tire & Rubber

CTB

          12.81

      62.26

                 797.55

                  450.00

        1,247.55

         310.40

      4.02

         285.00

            4.38

        337.00

                3.70

Titan International

TWI

          17.89

       42.12

                  753.51

                  214.00

           967.51

         124.00

       7.80

         192.60

             5.02

         255.60

                3.79

Federal-Mogul

FDML

          18.18

       98.91

               1,798.11

               1,790.00

        3,588.11

 636.00

       5.64

         742.00

            4.84

         810.00

                4.43

 

 

 AVG

 

            3,518.54

 

        $4,375.45

 

       5.87

 

            5.07

 

                4.48

 

 

 

 

 

 

 

 

 

 

 

 

 

Cooper Standard

COSH

         $39.50

       22.73

                $897.84

                  $354.00

        $1,251.84

        $246.00

       5.09

         $355.00

             3.53

        $430.00

                 2.91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   $63.57

 

    $69.13

 

 

 

 

 

 

 

 

 

 Upside

             61%

 

                75%




Catalyst

- Listing on a major exchange, providing better liquidity, potential analyst coverage and an inline peer multiple
- Sale of company to private equity or industry buyer 
    sort by    

    Description

    Investment Thesis

    Cooper- Standard Holdings ("COSH") is a leading supplier globally of body sealing, fluid systems and anti-vibration systems for the auto industry.  It is traded currently on the OTCBB and has recently hired bankers to consider strategic alternatives, mostly likely a sale or IPO listing.  The company is growing in all areas, has strong market positions globally, benefiting from BRIC market expansion, a strong balance sheet and in the sweet spot for stricter fuel economy and emission standards.  The company at 3.5x 2011 EV/EBITDA is valued well substantially below peer valuations of 5.6x, even though it has less capex needs as well as a listing or sale in the near future.  The main holders Silver Point, Oak Hill, Cap World, MSD, Apollo all are incentivized post the 2009 reorg to exit or get better liquidity in the stock, which I expect in the next 6 months, likely narrowing the valuation gap and yielding 45-70% upside.  

    Business

    Based in Novi, MI, COSH manufactures fluid handling, body sealing and anti vibration systems ("AVS") used in vehicles and light trucks developed by global OEMs, as well as for replacement markets.  COSH designs and manufacturers in the regions in which it sells, operating in 18 countries with 66 manufacturing locations and 9 design & engineering offices.  It has products in nearly all top 20 models in the US and Europe, and is the largest body sealing system provider in the world.  COSH believes it is also the 2nd largest fluid handling manufacturer and one of the largest AVS providers in North America.

    From the 2010 10-K, its segments include:

    Body Sealing
    - Make extruded rubber and thermoplastic sealing, weather strip assemblies and encapsulated glass products to protect vehicle interiors from weather, dust and noise intrustion.   

    Anti-Vibration
    - Engine and body mounts, dampers, isolators, springs, stamped or cast metal products and rubber products, used to control and isolate noise and vibration in a vehicle to improve ride and handling.

    Fluid Handling
    - Pumps, tubes, hoses, connectors and valves used to control, sense, measure and deliver fluids and vapors throughout the vehicle.

    COSH holds over 300 patents on some of its technologies and process methods.  It spends quite a bit on R&D to keep and enhance its market positions, $68.8mm in 2010 & $62.9mm in 2009, and I expect that to increase to its pre-reorg levels of $80mm+ this year and going forward.

    The company has done an enviable job navigating its raw material cost volatility.  Headwinds recently for the industry were increases in rubber, oil and fabricated metal prices, but COSH has kept its gross margins intact with cost cuts, sourcing optimization and higher volumes.

    According to IHS Automotive, light vehicle production in Q22011 was +3.8% in North America/Europe and expected to increase 5.6% in Q32011.

    Customers

    In 2010, the breakdown of sales to major customers was:
    Ford 28%
    GM 16%
    Fiat 7%
    Volkswagon/Audi 6%
    Chrysler 6%
    Top 5 total 63%

    Renault/Nissan, Peugeot, BMW, Daimler, Porsche, Toyota, Visteon, top India/China OEMs are also customers.


    Balance Sheet & Liquidity

    Post reorg, COSH has $450mm 8.5% Senior Notes due 12/2018.  In addition, it has access to a $125mm ABL Facility, LIBOR+325-375, $42mm of which is outstanding as of 6/30.
     
    6/30/11 Cash was $313mm, and its working capital was north of $500mm

    As of 12/31/10, its pension obligations exceeded assets by $166mm, which I added to net debt.

    7% cumulative preferred stock - 1.051mm shares out as of 6/30/11.  Issued as part of reorg backstop.  $131mm value as of 6/30/11, convertible into 4.381mm shares.

    18.344mm shares of common out but with stock near $40, makes sense to include preferred dilution so using 22.73mm shares.

    Expects $105-115mm in 2011 capex and $25-30 in tax.  D&A $120mm

    Owns 47 manufacturing facilities globally, 23 in the US.  Have not done extensive analysis yet on the current value of these facilities.  

    Valuation
     
    Company guidance for 2011:

    Revenue - $2.8-2.9mm
     
    Volumes - US 13.9mm and Europe 20mm
     
    Adjusted EBITDA implied - $355-370mm

    Market cap with pref included:  $898mm
     
    Net debt with pension included:  $354mm
     
    Enterprise Value:  $1,252mm

    2011 EV/EBITDA = 3.4x - 3.5x


    Conservative estimate of 2011 free cash flow:

    EBITDA $355mm
    Int exp $40mm
    Tax $30mm
    Capex $115mm
    FCF=$170mm, 19% yield on equity.

    Net Income of $165mm assuming 15% tax rate, yielding EPS of $7.25, or 5.44x P/E
     
    Comps trade at an average of 5.22x EV/2011EBITDA and 10.65 2011 P/E, per the table below:

     

     


     

     

     

     

    LTM

    EV/LTM

    11E

    11E EV/

    12E

    12E EV/

    Company Name

    Symbol

    Price

    Shares

    Mkt Cap

    Net Debt

    TEV

    EBITDA

    EBITDA

    EBITDA

    EBITDA

    EBITDA

    EBITDA

    TRW Automotive

    PRQ

             $39.21

         123.72

                $4,850.98

                      $750.00

          $5,600.98

          $1,803.00

            3.11

          $1,802.00

                  3.11

         $1,888.60

                    2.97

    BorgWarner

    BWA

             69.16

          109.61

                7,580.63

                    1,150.00

          8,730.63

              951.40

           9.18

          1,072.00

                 8.14

          1,254.60

                    6.96

    Genuine Parts

    GPC

              54.21

          156.76

                8,497.96

                         (7.00)

          8,490.96

             921.88

           9.21

           1,015.86

                8.36

         1,082.00

                     7.85

    Goodyeard Tire & Rubber

    GT

              11.83

        244.36

                2,890.79

                  4,020.00

           6,910.79

          1,642.00

           4.21

           1,810.00

                3.82

         2,103.00

                    3.29

    Lear Corp

    LEA

             47.33

         103.87

                  4,916.17

                  (980.00)

           3,936.17

             910.20

          4.32

           1,051.80

                 3.74

          1,148.82

                    3.43

    Tenneco Inc

    TEN

             31.26

           60.21

                 1,882.07

                    1,130.00

           3,012.07

             558.00

           5.40

             619.80

                4.86

            722.09

                     4.17

    Dana Holding

    DAN

              12.85

         146.99

                 1,888.85

                     900.00

           2,788.85

            639.00

          4.36

              777.00

                 3.59

            878.00

                     3.18

    Wabco Holdings

    WBC

            42.39

            67.17

                2,847.34

                          9.00

          2,856.34

            393.00

           7.27

             485.20

                 5.89

             518.80

                      5.51

    Cooper Tire & Rubber

    CTB

              12.81

          62.26

                     797.55

                      450.00

            1,247.55

             310.40

          4.02

             285.00

                4.38

            337.00

                    3.70

    Titan International

    TWI

              17.89

           42.12

                      753.51

                      214.00

               967.51

             124.00

           7.80

             192.60

                 5.02

             255.60

                    3.79

    Federal-Mogul

    FDML

              18.18

           98.91

                   1,798.11

                   1,790.00

            3,588.11

     636.00

           5.64

             742.00

                4.84

             810.00

                    4.43

     

     

     AVG

     

                3,518.54

     

            $4,375.45

     

           5.87

     

                5.07

     

                    4.48

     

     

     

     

     

     

     

     

     

     

     

     

     

    Cooper Standard

    COSH

             $39.50

           22.73

                    $897.84

                      $354.00

            $1,251.84

            $246.00

           5.09

             $355.00

                 3.53

            $430.00

                     2.91

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

       $63.57

     

        $69.13

     

     

     

     

     

     

     

     

     

     Upside

                 61%

     

                    75%




    Catalyst

    - Listing on a major exchange, providing better liquidity, potential analyst coverage and an inline peer multiple
    - Sale of company to private equity or industry buyer 

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