Delphi Automotive ÷ 2 = 20% upside

Spin-Offs

Delphi Automotive recently split its stock into Aptiv (APTV) and Delphi Technologies (DLPH).  Delphi Technologies represents the firm’s spun-off powertrain segment while Aptiv encompasses its electrical architecture and electronic lines. Former parent, Delphi Automotive PLC is one of the world’s largest automotive parts makers, churning out a vast array of parts for the auto and commercial vehicle industries. 

Product lines include connection systems, fuel cells, electric vehicle parts, infotainment, displays, safety mechanisms, and powertrain systems. Aptiv is expected to close this year with revenue of $12.5 billion and 145,000 employees worldwide. Delphi Technologies, with revenues just under $5 billion, will employ 20,000 at operations in 24 countries.  

In early May 2017, Delphi announced a tax-free spin-off of its powertrain systems segment, which included its engine management systems and aftermarket operations into a new independent publicly traded company (Delphi Technologies). The spin was completed on Dec. 5, 2017, and Delphi Automotive was renamed Aptiv. Shareholders received one share of Delphi Technologies for every three shares of Delphi Automotive held. 

So far, the restructuring has benefited shareholders. If you would have bought Delphi Automotive (the parent) when the spin plan was announced and held the shares until the split ( seven months later), you would have enjoyed a 20% return (vs. 10% for the S&P 500).  Post-split, Aptiv will remain in the S&P 500 and Delphi Technologies will land in the S&P MidCap 400. This may create some selling pressure on Delphi Technologies shares, and potentially create a more attractive entry point for those interested in the stock. 

Valuation

We value Aptiv (APTV) using 2018 estimated sum-of-the-parts estimated value earnings before interest, taxes, depreciation, and amortization (EBITDA) methodology. Our fair value estimate of $88 is derived by applying 11.0x 2018 estimated value EBITDA multiple to electrical/electronic architecture segment and 9x multiple to the electronics and safety segment. This suggests that Aptiv offers little upside from the current stock price of $87. We feel Delphi Technology (DLPH-$55) is the more interesting opportunity post spin. We value Delphi Technology at $65 per share by assigning 2018 estimated implied EV/EBITDA multiple of 8.2x. This suggests 18% upside to our estimated fair value (as of Dec. 6).  

About the Author

Joe Cornell is a chartered financial analyst, a finance MBA and the author of McGraw-Hill’s “Spin-Off To Pay-Off.” As the founder and publisher of Spin-Off Research (www.spinoffresearch.com) he is widely-regarded to be among the foremos