Aptiv PLC (NYSE: APTV), once part of the mighty General Motors (NYSE: GM), emerged as a stand-alone company in 2017 with an explicit ambition to enable and benefit from key technological trends in the automotive industry.
Enabling vehicles to be ‘safe, green and connected’ is the company tag-line that neatly summarises their areas of expertise.
Why The World Needs Aptiv
The wider automobile industry meanwhile is experiencing a period of extraordinary change.
The death of diesel and the growth of hybrid and electric cars, the market shift to emerging economies and the dawn of autonomous vehicles, are all making this a very challenging period for automobile manufacturers.
It is, however also creating enormous opportunity for component suppliers that are on the right end of these technological shifts. Aptiv specialises in providing the electrical architecture for electrified power trains as well as the sensors and software that underpin greater levels of automotive autonomy and safety.
In fact, Aptiv has partnered with Lyft to provide a fleet of 75 self-driving cars in Las Vegas. Self-driving vehicles hold out the promise of radical improvements in vehicle safety along with lower environmental impact.
Why We Bought Aptiv Shares
Aptiv is at the forefront of the automobile industries’ changing landscape and we have invested in this stock for the following reasons:
- It’s a high-quality operator that is enjoying revenue growth well in excess of the wider automotive market. Aptiv has delivered a 5-year sales compound annual growth rate (CAGR) of 4.6%, but this has accelerated to 9% in the past two years.
- It has a product portfolio that matches the key technological shifts in the industry. The company derives approximately 75% of its revenues from either electrical distribution systems or from active safety technologies.
- It’s an industry leader with around 20% market share in electrical systems and around 15% market share in active safety technologies.
- We believe it valuation is reasonable. Given the outsize growth opportunity and attractive margins of around 13%, the company trades on 15x its profit and 10x Enterprise Value/EBITDA – both in-line with its five-year historical averages.
This analysis was contributed by Ted Franks, Fund Manager for the Pengana WHEB Sustainable Impact Fund. You can receive Pengana’s analysis by subscribing for the latest updates. Click here to the investing insights that matter.
This article contains general information only and is issued by Pengana Investment Management Limited, AFSL: 219 462 The information does not take into account your needs, goals or objectives. Therefore, you should speak to a qualified financial adviser before acting on the information.
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