Delphi Automotive PLC (DLPH) opened down at $21.25 in its IPO debut Thursday morning. The company priced the 24.08 million share IPO at $22.00, the low end of the indicated range of $22.00-$24.00. All of the shares are offered by selling shareholders, including 20.58M from Paulson & Co., who will still be the largest shareholder and own approximately 15.8% of the common shares post offering. Based on the $22.00 pricing, the company will have a market capitalization of approximately $7.22B million. Goldman (GS) and J.P. Morgan (JPM) are leading the offering.
Delphi Automotive is a global manufacturer of vehicle components in the categories they coin as “Safe, Green and Connected.” This includes components in electrical/electronic architecture, electronics and safety, powertrain systems and thermal systems. Delphi’s customers include the largest 25 OEMs in the world, and its products are in 50 of the top 60 platforms.
Delphi has gone under a complete transformation since seeking bankruptcy protection in 2005. It selectively reduced the number of business units from 27 to 10. It reduced core product lines from 119 to 33. And it streamlined segments from 7 to 4. Once reliant on General Motors (GM) as its major customer, with more than 70% of its sales in North America, the company now has no single customer over 21% of sales (though it still has GM), and the N.A. market only consists of 33% of sales today. Global headcount was reduced by about 23%, while U.S. workforce was reduced by about 90%, and today 91% of its hourly workers is in low cost countries. It also has almost completely eliminated any legacy liabilities with the elimination of the U.S. defined benefit pension liability and its U.S. OPEB liability.
After record bookings of new business in 2010 of $20 billion, Delphi has already booked $19 billion for the first 9 months of 2011. Revenue is up 19% year over year for 9 months 2011 to $12.14 billion. EBITDA over this period is up 39% to $1.59 billion, net income up 53% to $855 million, and cash flow up 6% to $909 million. The auto supplier believes it will continue to outpace the industry’s anticipated growth of 6.5% (from 2010 to 2015) in the foreseeable future, based on the fact that its content per vehicle is increasing and the categories it participates in are expected to grow at rates faster than overall vehicle production. It states that approximately 70% of sales are in markets where its products have either #1 or #2 market share.
As the largest IPO offering of the week (with 9 offerings scheduled for this week), this Delphi offering has been rather quiet as far as chatter on the street. There was some speculation that the price might come down a bit, so the low-end pricing is not too much of a surprise. While the valuation appears reasonable (compared with comps for companies such as Magna (MGA), Lear (LEA), Tower Automotive (TOWR), Visteon (VC) , American Axle (AXL), BorgWarner (BWA), it is not much of the discount that many look for on an IPO. While it appears to be a slight discount to the group average on an estimated 2011 P/E, it appears slightly expensive compared with the group average on a ttm EV/EBITDA. There was also some talk that with 43% of the current sales in Europe, the current crisis overseas has put a damper on the offering. Whatever the cause, this may be a stock to watch as the valuation does look reasonable based on the growth, but there may be a better entry point down the road as the selling shareholders surely will be offering more shares in the months ahead (as soon as the lock-up expires).