Aptiv, driving change in the automotive industry

Aptiv (NYSE: APTV) is a major US-headquartered manufacturer of components for the automotive industry. Spun-out from Delphi Automotive in 2017, the company’s products enable motor vehicles to be ‘safe, green and connected’. The company is ideally placed to support automotive manufacturers as their businesses shift towards electrified power trains and autonomous vehicles. Even as the underlying number of vehicles slows, Aptiv expects to grow its content per vehicle to deliver revenue growth 5% ahead of the market.

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:

1. 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.
2. 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.
3. Industry leader with c.20% market share in electrical systems and c.15% market share in active safety technologies.
4. 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.

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