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.
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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 …