Value Driver

A market-leading auto parts spin-off offering up to ~140% upside.

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Value Situations is NOT investment advice and the author is not an investment advisor.

All content on this website and in the newsletter, and all other communication and correspondence from its author, is for informational and educational purposes only and should not in any circumstances, whether express or implied, be considered to be advice of an investment, legal or any other nature.  Please carry out your own research and due diligence.

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“Mediocrity is not worth the trip.”

Sergio Marchionne.

At this year’s Sohn Investment Conference, David Einhorn pitched Vitesco Technologies Group AG (VTSC), a European auto parts company spun out of German automotive group Continental AG (CON) in 2021. The thesis for Einhorn’s idea is that VSTC is transitioning from being a supplier of auto parts for internal combustion engine (ICE) vehicles to one focused on electric vehicles, and that it is set-up for an earnings inflection from FY24 onwards.

Certainly VSTC is an interesting name, however I believe I have found another, more interesting idea along the same theme that comes with more levers to unlock value.

My new idea is also a recent spin-off, and is the market leader within its sub-sector of the automotive parts industry. Yet despite its leading competitive position it is an overlooked business and a classic post-spin off value situation, trading at a discount to listed peers and a substantial discount to its private market / break-up value.

The stock is mispriced due to mandated selling by former parent shareholders following the spin, limited analyst coverage and a lack of trading history as a standalone company. With much of the stock overhang from its former parent now cleared and new analyst initiation coverage, the stock appears well positioned for a market re-rating.

What makes this name particularly interesting to me is that it also benefits from potential event-driven catalysts, being a probable takeover target given its corporate history, its market position, earnings profile and growth prospects. Separately, a break-up strategy led by management is also a likely value event in the medium term, regardless of whether it is acquired by a strategic or PE buyer.

This new conviction idea is …