Delphi Automotive PLC (proposed DLPH) IPO Report
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Quarterly,

Based in Kent, UK, Delphi Automotive PLC (proposed DLPH) scheduled a $554 million IPO with a market capitalization of $7.5 billion at a price range mid-point of $23 for Thursday, November 17, 2011.

SUMMARY

DLPH is one of the largest vehicle component manufacturers, emerged from bankruptcy and plans on selling 7% on the IPO, with 100% of proceeds payable to shareholders.

General Motors (GM)& GM of Shanghai accounted for 25% of 2010 revenue. Ford (F) accounted for 9% of 2010 revenue. GM’s and Ford’s stock prices have declined year-to-date respectively –-40% and –35%, which doesn’t bode well for DLPH.

VALUATION

DLPH’s price-earnings ratio (annualized for nine months ended September 2011), is 6.2, which is a discount from P/E’s for the same time period for competitors Lear (LEA) and BorgWarner (BWA), whose P/E’s respectively are 7.4 and 13. DLPH’s price-to-book value is at a premium to LEA and BWA.

Year-to-date BWA’s stock is down 9%, LEA"s stock is down 15%: both segment competitors stocks have not performed particularly well so far in 2011.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

Stock

Annualizing June 9 mos

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

YTD

Delphi Auto (DLPH)

$7,544

0.5

6.2

3.6

n/a

n/a

BorgWarner (BWA)

$7,240

1.0

13

3.0

6.6

-9%

Lear (LEA)

$4,300

0.3

7.4

1.6

1.6

-15%

Also see enterprise value comparisons at the bottom of this report, including comparisons with General Motors and Ford.

 

CONCLUSION

DLPH appears to be fairly valued at the price range mid-point of $23, based on the above ratios and on the economic outlook discussed below.

BUSINESS

DLPH is one of the largest vehicle component manufacturers. Customers include the 25 largest automotive OEMs in the world.

DLPH operates 110 manufacturing facilities and 14 major technical centers utilizing a regional service model that enables us to efficiently and effectively serve our global customers from low cost countries. DLPH has a presence in 30 countries and has over 16,000 scientists, engineers and technicians focused on developing market relevant product solutions.

COMPETITIVE STRENGTHS

DLPH estimates that it holds the #1 or #2 position in product categories representing over 70% of our 2010 net sales, including electrical/electronic, distribution systems, automotive connection systems, diesel engine management systems, and infotainment & driver interface.

In addition, in 2010 DLPH’s products were found in 17 of the 20 top-selling vehicle models in the United States, in all of the 20 top-selling vehicle models in Europe and in 13 of the 20 top-selling vehicle models in China.

ECONOMIC OUTLOOK & EXPECTATIONS

DLPH operates in a cyclical industry that is impacted by movements in the macro economy.

Current OEM production volumes in North America and Western Europe continue to be substantially less than OEM production volumes prior to the disruptions in the economic and credit markets experienced in 2008 and 2009.

Europe

EU Could Face 'Deep, Prolonged Recession'

Wall Street Jounral

http://online.wsj.com/article/SB10001424052970204224604577029442286713940.html?mod=WSJ_hp_LEFTTopStories

"The Brussels-based European Commission lowered its forecasts for next year’s economic growth in the single currency bloc to 0.5 per cent from the 1.8 per cent it foresaw in the spring."

FT.COM

http://www.ft.com/intl/cms/s/0/9b29b0da-0b85-11e1-9861-00144feabdc0.html#axzz1dKfgoABx

DLPH expects that nearly half of its total future growth will be generated from emerging markets, especially China, which now represents a larger market for automotive components than either the United States or Japan.

China risk & yuan appreciation risk

The automotive supply market in China is highly competitive, with competition from many of the largest global manufacturers and numerous smaller domestic manufacturers.

As the size of the Chinese market continues to increase, DLPH anticipates that additional competitors, both international and domestic, will seek to enter the Chinese market and that existing market participants will act aggressively to increase their market share.

Increased competition may result in price reductions, reduced margins and DLPH’s inability to gain or hold market share. In addition, DLPH’s business in China is sensitive to economic and market conditions that drive sales volume in China.

Furthermore, if the YUAN appreciates relative to the dollar, then revenue and earnings stated in dollars will experience a relative decline.

Other Markets

The nature of the markets in which DLPH competes may attract new entrants, particularly in low-cost countries such as China, Brazil, India and Russia.

CUSTOMERS

10 Largest Customers accounted for 2/3 of 2010 year revenue

General Motors (GM)

21%

Ford Motor(F)

9%

Volkswagen (VLKAY.PK)

8%

Daimler AG (DDAIF.PK)

6%

PSA Peugeot Citroën (PEUGY.PK)

5%

Renault S.A. (RNSDF.PK)

4%

Shanghai General Motors

4%

Fiat Automobiles (FIATY.PK)

3%

Hyundai Motors (HYMTF.PK)

3%

Toyota Motor (TM)

3%

10 largest customers

66%

COMPETITION

Electrical/Electronic Architecture

FCI SA, Lear (LEA), Leoni AG, Molex (MOLX), TE Connectivity, Ltd. (TEL), Sumitomo (SSUMY.PK), Yazaki Corporation.

Powertrain Systems

BorgWarner (BWA), Bosch Group, Continental AG (CTTAY.OB), Denso Corporation, Hitachi, Ltd. (HIT), Magneti Marelli S.p.A.

Electronics and Safety

Aisin Seiki Co., Ltd. (ASEKF.PK), Autoliv AB (ALV), Bosch Group, Continental AG, Denso Corporation, Harman International Industries (HAR), anasonic Corporation (PC)

Thermal Systems

Denso Corporation, MAHLE Behr Industry, Sanden Corporation, Valeo Inc., Visteon Corporation (VC)

HISTORY

A group of debt holders led by Silver Point Capital and Elliott Management Corp. gained control of Delphi along with GM in 2009, and the Paulson funds emerged with their big stake this year. Earlier this year, Delphi bought back stakes owned by GM and the Pension Benefit Guaranty Corp.

On August 19, 2009, Delphi Automotive LLP, a limited liability partnership organized under the laws of England and Wales, was formed for the purpose of acquiring certain assets and subsidiaries of the former Delphi Corporation, the Predecessor, which, along with certain of its U.S. subsidiaries, had filed voluntary petitions for bankruptcy in October 2005.

On October 6, 2009, Delphi Automotive LLP acquired the major portion of the business of the Predecessor, other than the global steering business, the U.S. manufacturing facilities in which the hourly employees were represented by the UAW and certain non-productive U.S. assets, and Delphi Automotive LLP issued membership interests to a group of investors consisting of lenders to the Predecessor, GM and the PBGC.

USE OF PROCEEDS

100% to shareholders, including hedge fund manager John A. Paulson who plans to reduce his company’s stake in Delphi Automotive to as low as 15 percent from 22 percent.

After Paulson, Delphi's three next largest holders with a combined 29% stake aren't selling any shares, the Delphi filing indicates. They are funds managed by Elliott Management Corp., which holds 13%, Silver Point Capital LP at 9% and Oaktree Capital at 7.5%.

Delphi Auto

DLPH, C+, 6

Post PO shares: 328mm

Data security

Sept 9 mos

Sept 9 mos

Redwood Shores, CA

pages 37-8

2010

2010

2011

IPO Mkt

Revenues ($mm)

$13,817

$10,165

$12,141

Cap (mm)

Gross Margin % of revenue

15%

n/a

16%

$7,544

Net loss ($mm)

$631

$556

$838

@$23

Net income (loss) % of revenue

5%

5%

7%

EBITDA

$13,817

$1,291

$1,589

EBITDA % of Revenue

13%

13%

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing Sept 9 mos

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

in IPO

Delphi Auto (DLPH)

$7,544

0.5

6.2

3.6

n/a

7%

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

Stock

Annualizing June 9 mos

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

YTD

Delphi Auto (DLPH)

$7,544

0.5

6.2

3.6

n/a

n/a

BorgWarner (BWA)

$7,240

1.0

13

3.0

6.6

-9%

Lear (LEA)

$4,300

0.3

7.4

1.6

1.6

-15%

General Motors (GM)

$34,840

0.2

4.4

0.8

-39.5

-40%

Ford (F)

$41,690

0.3

4.7

7.0

7.1

-35%

SCORECARD

Mgt

Market

Market Do-

Proprie-

Total

1-5, 5 is high

Growth

mination

tary

rating

20 is perfect

2

1

2

1

6

ENTERPRISE VALUE

Market cap

debt

less cash

Enterprice

& equivalents

Value

Delphi Auto (DLPH)

$7,544

$2,200

-$1,345

$8,399

COMPETITORS

BorgWarner (BWA)

$7,240

$3,689

-$377

$10,552

Lear (LEA)

$4,300

$4,589

-$1,676

$7,213

CUSTOMERS

General Motors (GM)

$34,840

$109,000

-$32,800

$111,040

Ford (F)

$41,690

$157,000

-$16,460

$182,230

Enterprice

EV /

EV /

EV /

EV /

Gross

Nine mos ended Sept 2011

Value (EV)

Sales

Earnings

BookValue

TangibleBV

Margin

COMPETITORS

Delphi Auto (DLPH)

$8,399

0.5

6.9

4.0

n/a

16%

BorgWarner (BWA)

$10,552

1.5

19

4.4

9.6

20%

Lear (LEA)

$7,213

0.5

12.4

2.7

2.7

11%

CUSTOMERS

Delphi Auto (DLPH)

$8,399

0.5

6.9

4.0

n/a

16%

General Motors (GM)

$111,040

0.7

14

2.7

-125.9

Ford (F)

$182,230

1.3

20.7

30.5

31.0