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Aptiv (NYSE: APTV), once part of the mighty General Motors, 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.
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.
Aptiv is at the forefront of the automobile industries’ changing landscape and we have invested in this stock for the following reasons:
- High quality operator that is enjoying revenue growth well in excess of the wider automotive market. Aptiv has delivered a 5 year sales CAGR of 4.6% but this has accelerated to 9% in the past two years.
- 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.
- Industry leader with c.20% market share in electrical systems and c.15% market share in active safety technologies.
Valuation is reasonable we believe. Given the outsize growth opportunity and attractive margins of around 13%, the company trades on 15x PE and 10x Enterprise Value/EBITDA – both in-line with its five year historical averages.
This stock is currently held by our Pengana WHEB Sustainable Impact Fund.
This report has been prepared by Pengana Investment Management Ltd (ABN 69 063 081 612), Australian Financial Services Licence No. 219462) (“Pengana”). This report does not contain any investment recommendation or investment advice and has been prepared without taking account of any person’s objectives, financial situation or needs. Therefore, before acting on the information in this report a person should consider the appropriateness of the information, having regard to their objectives, financial situation and needs.
Pengana is the issuer of units in the Pengana WHEB Sustainable Impact Fund (ARSN 121 915 526) (“the Fund”). A Product Disclosure Statement for the Fund (“PDS”) is available and can be obtained by contacting Pengana on (02) 8524 9900. A person who is considering investing in the Fund should obtain the relevant PDS and should consider the PDS carefully and consult with their financial adviser to determine whether the Fund is appropriate for them before deciding whether to invest in, or to continue to hold, units in the Fund.
The value of investments can go up and down. Past performance is not a reliable indicator of past performance.While care has been taken in the preparation of this report, Pengana makes no representation or warranty as to the accuracy, currency or completeness of any statement, data or value. To the maximum extent permitted by law, Pengana expressly disclaims any liability which may arise out of the provision to, or use by, any person of this report.