trw a utomotive h oldings equity investment presentation 1 richie hartz ha da jang diana yang april...
TRANSCRIPT
TRW Automotive HoldingsEquity Investment Presentation
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Richie HartzHa Da Jang Diana Yang
April 11, 2013
Agenda
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IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Introduction
Company Overview
Industry Overview
Stock Performance
Financial Analysis
Valuation
Recommendation
Company Profile
• Headquartered in Livonia, Michigan
• Employs over 66,000 people worldwide
• Approximately 190 facilities in 25 countries
• Serves all major OE vehicle manufacturers
worldwide
• Leading developer and supplier of active and
passive safety systems
• Four business segments: Chassis Systems,
Occupant Safety Systems, Electronics and
Automotive Components
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Braking
Steering
OSS (Occupant Safety Systems)
Electronics
Source: Company Report
IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Company History
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IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
1958: Ramo-Woolridge Corporation merged into Thompson Products, Inc.
1999: TRW Inc. acquired Lucas Varity plc, expanded auto product offering
2002: TRW Inc. acquired by Northrop Grumman Corp.
2004: TRW Inc. completed IPO on NYSE
2003: Northrop sold TRW Inc.’s automotive operations to an indirect wholly-owned subsidiary of the Company
1958 1999 2002 2003 2004
Source: Company Report
Sales Breakdown
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IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Geographic Customer Product
Source: Company Annual Report 2012
• Diversified sources of revenue• Limited reliance on any single customer, platform or market• Global footprint - ability to leverage technology and products across customers and
regions• Economies of scale – optimize cost structure
Breakdown of 2011 Sales of $16.2 bn
Product Segments
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IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Chassis Systems
•Steering systems• Foundation brakes•ABS•Electronic stability control•Chassis aftermarket
“Active” Safety
2011 Sales of $16.2 bn
“Passive” Safety
Electronics
•Safety electronics •Driver assist systems•Chassis electronics•Powertrain electronics•RF products
Occupant Safety Systems
•Airbags•Seat belts•Steering wheels
Automotive Components
•Body Controls•Engine Valves•Fasteners
Source: Company Annual Report 2012
Historical Financials
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Investment ThesisInvestment Thesis CompanyCompany IndustryIndustry ValuationValuation
12.9%
1.2%
Source: Company Annual Report 2012 Source: Company Annual Report 2012
Source: Company Annual Report 2012 Source: Company Annual Report 2012
Company Profile — Competitive Strengths
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IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuationSource: BaML 2013 Auto Summit Presentation
Strengths WeaknessesBroad portfolio of active and safety products Cyclical sales and production
Diversified customer base Recent insider selling
Consistent delivery of results Usable life of vehicles in US is increasing
Strong and constant innovation Weak Q4 2012 – Profit down 16% YoY
Cost competitiveness
Opportunities ThreatsContinued demand for safety in vehicles Exposure to commodities price fluctuations
Growth in emerging markets Prolonged recovery in Europe
Long term outlook is positive for production levels Anti-trust investigations
Increased government safety regulations Changing regulatory environment
Expansion through 11 new plants in 2013-2014 Exchange rate risk – 71% of sales outside of US
Porter’s Five Forces
Threat of New Entrants: Moderate
Threat of Substitute Products: HighGrowing Degree of Outsourcing
Bargaining Power of Buyers: HighPricing Pressures Addressed in 2012 10K
Bargaining Power of Sellers: ModerateHigh Concentration of Sellers
Intensity of Competition: HighMargin Contraction, Low Growth Potential
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IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Braking, Steering, and Suspension Segments
Global Outlook
10Source: BaML 2013 Auto Summit Presentation
IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
North America China & Brazil Europe
Expected Global Trends•Robust consumer demand is expected to support increased production in North America at a moderate pace•Macro economic uncertainties affecting production in Europe•Continued expected growth in emerging markets
Expected Industry Production Trends(units in millions)
Future Growth Drivers•Continued importance of safety and fuel efficiency
Adapting with regulatory demands
•Overall industry recovery Still below trend levels Long term outlook remains favorable
•Keeping up with technological innovation
•Expanding growth in emerging markets Increased government regulations (i.e. Brazil)
Macroeconomic Indicators
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IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Source: Bloomberg
Commodities
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(USD/MT)
IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Source: BloombergSource: Bloomberg
Source: BloombergSource: Bloomberg
Stock Performance
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Equity SnapshotEquity Snapshot
• Price: $ 55.83• Beta: 2.13• Trailing P/E: 7.13• Forward P/E: 8.53• PEG Ratio (5 yr. expected):
0.78 • P/B Ratio: 1.82
Share Repurchase• Nov 3 – Nov 30: $ 48.37 * 1,707,958 shares• Dec 1 – Dec 31: $ 51.60 * 1,604,533 shares
Source: Finance.yahoo.com
IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Stock Performance – cont’d
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Source: Capital IQ
IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Stock Performance – cont’d
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IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Key Financial Ratios
16Source: Company Report
Valuation Ratios 2010A 2011A 2012AEarnings per Share (EPS) $6.35 $8.70 $7.79Price Earnings Ratio (P/E) 4.94 5.92 7.17
Profitability RatiosROA 9.0% 11.3% 9.3%ROE 37.3% 36.9% 26.7%Gross Margin 12.0% 11.5% 10.9%Operating Margin 8.2% 7.8% 6.6%Net Income Margin 6.1% 7.4% 6.3%
Efficiency RatiosInventory Turnover 16.66 17.02 15.03Fixed Asset Turnover 6.85 7.60 6.89
Liquidity RatiosCurrent Ratio 1.18 1.20 1.22Acid Test 0.37 0.41 0.40Operating Cash Flow Ratio 0.34 0.33 0.28
IntroductionIntroductionIntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Valuation — WACC Analysis
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Capital StructureTotal Debt 1,462Market Value of Equity $7,206.47Debt-to-Total Capitalization 16.9%Equity-to-Total Capitalization 83.1%
Cost of DebtCost of Debt 7.3%Tax Rate 28.0% After-tax Cost of Debt 5.3%
Cost of EquityRisk-free Rate(1) 1.8%
Market Risk Premium(2) 7.0%
Beta(3) 2.13 Cost of Equity 16.7%
WACC 14.8%
WACC Calculation
(1) Risk-free Rate - 10-year treasury yield as of April 10, 2013
(2) Market Risk Premium - Determined based on auto analyst average
(3) Beta taken from 5-year historical Bloomberg data
IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Valuation
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IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Enterprise Value 8,936Less: Debt (1,462)Add: Cash 1,223Implied Equity value 8,697
Shares Outstanding 130.694Implied Fair Value Per Share $66.54
Current Share Price $55.14
(in $ millions) 2013E 2014E 2015E 2016E 2017ERevenues 17,924 19,179 20,329 21,346 22,200COGS 15,937 17,033 18,012 18,913 19,670Gross Profit 1,987 2,146 2,317 2,433 2,530
% of Sales 11.1% 11.2% 11.4% 11.4% 11.4%
Operating Income 1,184 1,260 1,085 1,213 1,318% of Sales 6.6% 6.6% 5.3% 5.7% 5.9%
Net Earnings (attrib. TRW) 985 1,078 1,175 1,225 1,2415.5% 5.6% 5.8% 5.7% 5.6%
Add: Depreciation and Amortization 450 484 508 521 521Less: Change in Net Working Capital (101) 90 130 372 445Less: Capital Expenditures (654) (687) (721) (757) (795)
Free Cash Flows 679 965 1,091 1,361 1,411Terminal Growth Rate 3.0%Terminal Value 12,342
Discount Rate 14.8%Enterprise Value $8,935.71
Terminal Growth Rate
$66.54 2.0% 2.5% 3.0% 3.5% 4.0%
13% $76.42 $79.09 $82.04 $85.30 $88.93
14% $69.09 $71.22 $73.55 $76.11 $78.92
15% $62.94 $64.67 $66.54 $68.58 $70.81
16% $57.72 $59.14 $60.67 $62.32 $64.12
17% $53.23 $54.41 $55.68 $57.03 $58.50
WA
CC
Valuation — Trading Comparables
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Enterprise Value / Price NTM Enterprise Value NTM Forward
Company Name EBITDA EBIT Diluted EPS Tangible BVForward Total
Revenue Forward EBITDA P/E
TRW Automotive Holdings Corp. (NYSE:TRW) 4.3x 5.7x 6.9x 4.2x 0.41x 4.2x 8.53x
Autoliv, Inc. (NYSE:ALV) 5.8x 7.8x 13.3x 3.1x 0.72x 5.8x 11.98x
AutoNation Inc. (NYSE:AN) 13.1x 14.9x 16.8x 32.0x 0.57x 12.4x 14.68x
BorgWarner Inc. (NYSE:BWA) 7.6x 10.0x 17.4x 4.9x 1.18x 7.4x 13.66x
Dana Holding Corporation (NYSE:DAN) 4.1x 6.4x 11.8x 3.6x 0.43x 3.8x 8.66x
Delphi Automotive PLC (NYSE:DLPH) 7.0x 9.0x 12.8x 12.5x 0.93x 6.5x 10.09x
Icahn Enterprises, L.P. (NasdaqGS:IEP) 9.0x 12.6x 16.3x 4.0x - - -
Johnson Controls Inc. (NYSE:JCI) 10.1x 14.4x 19.8x 6.0x 0.67x 8.4x 11.99x
Lear Corp. (NYSE:LEA) 4.3x 5.6x 4.1x 1.8x 0.27x 4.0x 10.79x
Magna International Inc. (TSX:MG) 4.9x 7.6x 9.6x 1.7x 0.38x 4.8x 10.27x
Tenneco Inc. (NYSE:TEN) 5.1x 7.1x 8.1x 27.4x 0.42x 4.7x 10.23x
High 13.1x 14.9x 19.8x 32.0x 1.2x 12.4x 14.7xLow 4.1x 5.6x 4.1x 1.7x 0.3x 3.8x 8.7xMean 7.1x 9.5x 13.0x 9.7x 0.6x 6.4x 11.4xMedian 6.4x 8.4x 13.1x 4.5x 0.6x 5.8x 10.8x
LTM EBITDA LTM EBIT LTM Diluted
EPS LTM Tangible
BV/Share NTM Revenue /
Share NTM EBITDA NTM EPS TRW Automotive Holdings Corp. (NYSE:TRW) 1,585.0 1,176.0 7.83 12.81 16,720.26 1,648.48 6.32Implied Price_Mean $93.70 $93.41 $101.79 $124.26 $86.16 $88.15 $71.87Implied Price_Median $84.46 $82.25 $102.18 $57.00 $79.36 $79.61 $68.19
IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Risks & Decision Drivers
(1) GICS Diversification
(2) Discount to Peers
(3) DCF Valuation
(1) Consistently Low P/E Ratio (8.5x Forward)
(2) Competitive Market Segment
(3) Cyclicality
(4) Macroeconomic Landscape
Risks
IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Decision Drivers
Recommendation
Watch List
IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation
Questions?
TRW Automotive
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