Is yet another Car of the Future stock about to be acquired?
Since it was launched in November 2016 the strong performance of the “Car of the Future” thematic portfolio (+31.97% since inception) has been bolstered by the acquisitions of two of its holdings. Machine vision pioneer Mobileye was acquired by Intel and infotainment specialist Harman was bought by Samsung Electronics, both at significant premiums to the share price.
Clearly “big tech” sees the value in companies that are providing the underlying technology for electronic vehicles and autonomous cars. Recent news flow suggests that yet another one of the holdings in Car of the Future could well become the next acquisition candidate.
Delphi Automotive (DLPH US)
Delphi Automotive is a leading Tier-1 global vehicle components manufacturer and provider of electrical and electronic, powertrain, safety and thermal technology solutions to the global automotive and commercial vehicle markets. The company operates in a number of growth markets underpinned by long term themes including increasingly stringent emissions standards and fuel efficiency regulations, as well as automobile driver/passenger safety systems and technology connectivity (i.e. communication, navigation, monitors/displays and infotainment systems).
In May 2017 Delphi announced a split: Delphi’s engine-focused powertrain business will be spun off to investors as a separate listed entity. The remaining (RemainCo) should act as a strong proxy for developments in automotive technology. Currently the bulk of sales currently come from auto electronics—cabling, connectors etc—which should continue to prosper as cars become more like computers on wheels. Yet Delphi’s RemainCo also has a number of promising niches businesses in high growth areas such as the radar, vision and camera systems that currently help drivers reverse, park and navigate in their lane. Such technology will eventually make cars fully autonomous; Delphi is also a “systems integrator” for the driverless-car project formed last year by BMW, Intel and sensor specialist Mobileye.
For a potential acquirer three positive investment attributes stand out. Delphi’s products are geared to autonomous driving, fuel economy, safety and electronics - the “sweet spot” in the car of the future in our opinion. Delphi also generates structurally stronger margins (in all geographies) than many of its competitors and also has a well-established China business.
Having spun off its legacy powertrain business which is more geared to the world of internal combustion engines (ICE), some analysts believe that Delphi is quickly transforming itself into more of a pure automotive technology play, poised to benefit from the brave new world of autonomous vehicles and that’s exactly what makes them a take-over candidate particularly by mainstream technology companies who see the incredible potential of self-driving vehicles.
Delphi Automotive (DLPH US)
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