|Shares Out. (in M):||323||P/E||10.5x||8.7x|
|Market Cap (in $M):||12,500||P/FCF||14.2x||10.7x|
|Net Debt (in $M):||456||EBIT||1,671||1,856|
Delphi Automotive (DLPH) is an OEM supplier focused on electrical architecture, powertrain, safety electronics, infotainment, and thermal solutions. Through a lengthy bankruptcy process that began in 2005, DLPH transformed itself from a collection of disparate businesses into a secular grower with a low cost structure, high technology products, diverse customer base, major presence in emerging markets, clean capital structure, and negligible legacy liabilities.
Despite having the lowest level of pension/OPEB liabilities vs. peers, 0.2x net leverage, and highest ROIC, DLPH continues to trade like a commodity OEM supplier. Although DLPH has been among the best performing stocks in the sector over the past year, we still believe the market is not giving the company enough credit for its long-term growth prospects and margin expansion opportunity. DLPH is often bucketed among lower-quality peers such as AXL, DAN, and LEA vs. BWA, which benefits from similar secular growth, cost structure, profitability/defensible margins, and proprietary technology. On a P/E basis, DLPH trades at a 40% discount to BWA, and we believe the gap will narrow as DLPH continues to prove its margin sustainability and product viability.
CEO Rod O’Neal
As COO in 2005, Rod understood that DLPH could not survive under its existing cost structure. He proactively took the company into bankruptcy and eliminated their UAW workforce, while rationalizing the business to focus on the three mega trends of connectivity, safety, and green. In doing so, he took the company from 119 product lines to 33 and from 7 business units to 4, reduced the global avg. hourly wage cost from $15 to $7, increased the temporary workforce from 15% to 26%, and reduced legacy benefit obligations from $12.5bn to $700m. Under O'Neal leadership, DLPH is now a lean and focused organization with tremendous FCF generation potential and a major competitive benefit via its highly flexible and structurally low cost workforce.
Secular growth – connectivity, safety, green
Summary Financial Estimates (incl. MVL and $750m of annual buybacks)
High European exposure – 45% of sales derived from Europe with future production cuts expected, therefore, company may lower guidance
Pricing pressure – beyond contracted step-downs, OEM production pressures = constant effort to squeeze suppliers
Significant exposure to GM – 25% of sales
Currency translation – +/- 10% change in EUR has ~$65m EBITDA impact
Raw material exposure – +- 10% change in copper price has ~$12.5m EBITDA impact
Initiating of regular dividend
Increasing content per vehicle
Future accretive M&A