2011  2012  
Price:  84.00  EPS  $7.40  $17.05  
Shares Out. (in M):  5  P/E  11.1x  4.7x  
Market Cap (in $M):  382  P/FCF  0.0x  0.0x  
Net Debt (in $M):  133  EBIT  63  136  
TEV ($):  515  TEV/EBIT  0.0x  0.0x 
Company Overview
Autoneum was formerly a business segment of Rieter Holding AG (RIEN SW) until it was spunoff on 5/13. The stock quickly traded to SFr119 but has barely managed an uptick since, losing 1/3^{rd} of its value since the second day of trading. Rieter is a Swiss industrial firm that's a wellrun, albeit sleepy and uninteresting conglomerate. They previously had two divisions: Textile Systems, and Automotive. The textile business sells capital equipment used for spinning and producing yarn (I warned you it was boring). There isn't much growth in the textile business but it has a surprisingly high ROIC and it generates nice cash flow. The auto business was entered in the mid 80's and it's grown steadily since. Management felt the auto business was ready to stand on its own although with spinoffs it's safe to assume that there are other motivations involved.
Rieter's automotive business, now Autoneum, is a large player in acoustics and thermal management parts and systems. What does that mean? These are various types of covers and panels that are affixed to other parts inside the vehicle. Behind the dashboard, for example, a car will need a protective layer of synthetic material that dampens engine noise and absorbs heat. Same thing for the wheel wells, the underside of the hood, trunk, etc. Autoneum has spent decades working on the materials and design of these parts in order to perform better, reduce weight, and improve cost. They have 48 plants around the world while sales are 54% in Europe, 33% North America, 9% LatAm, and 4% Asia. Here's the company presentation which can provide more details about what they sell and to whom, and here's another presentation that goes into some more detail about the spinoff.
Financially speaking, Autoneum looks like most other auto part OEM's. Its sales growth follows vehicle production growth while EBIT margins are in the midsingle digits and ROIC is in the low teens. Nothing about Autoneum stands out from the crowd, it looks pretty much like what you'd expect, which is to say a typical auto parts OEM whose fortunes generally rise and fall with the industry.
In early 2008 Rieter management undertook a broad restructuring of the company. The moves included shutting down Western European manufacturing plants and moving them to Eastern Europe (cheaper labor, closer to customer plants), layoffs and plant closings in North America, a reduction in corporate overhead, a shift to more temporary workers, and disposal of some smaller noncore businesses. The result has been lowering the EBIT breakeven point on revenue from about SFr2,000m to SFr1,625m. The total expense cuts were SFr195m, but importantly only 2/3^{rd} of it has been realized so far. Management expects the remaining SFr65m to be recognized by the beginning of 2012 (restructuring in Western Europe is notoriously difficult, as most readers probably already know). I believe these additional expense reductions will play a major role in allowing Autoneum to achieve EBIT margins above their previous average.
Financials
The company has 4.6m shares outstanding, SFr256m in debt and SFr123m in cash. Historically, Autoneum had EBIT margins of 5.0% which was below the global auto OEM average of 6.2% and European average of 7.2%. Margin ranges from companytocompany are surprisingly tight; there are only one or two outliers in either direction. The value proposition is pretty simple. If Autoneum returns to historical margins of 5%, which seems like a layup given the restructuring (almost every auto parts OEM has brought margins back to historical levels), it would produce EBIDTA of SFr175m and EPS of SFr12.00. Comps trade at 6.5x trailing EV/EBITDA (5.4x current year) and 12.5 trailing P/E (11.5x current year). This would imply that Autoneum is worth between SFr138175/share for 65110% upside. I would call this a base case as it assumes average margins.
Where things get interesting is when you factor in the remaining cost cuts of SFr65m, most of which should fall to the bottom line from here on out. Holding revenue assumptions constant, I estimate EBIT margins would expand to something more like 7%. While this is above Autoneum's historical average it's by no means a heroic assumption since that's close to every other European OEM margins. This new margin structure would produce EBITDA of SFr218m and EPS of SFr18.00, implying a fair value of SFr205225/share. I forecast revenue growth based on the weighted average sellside estimates for revenue growth of their customers. Autoneum's sales are more volatile so while they did worse during the downturn (negative 2030% sales vs customers negative 712%) they should do better during the rebound. I've only budgeted for them to perform slightly better.
2006  2007  2008  2009  2010  2011  2012  2013  
Revenue  2,179  2,363  1,960  1,387  1,678  1,737  1,910  2,025 
Growth  7.3%  8.4%  17.1%  29.2%  21.0%  3.5%  10.0%  6.0% 
Expenses  2,084  2,271  2,211  1,503  1,656  1,674  1,775  1,863 
EBIT  95  92  251  116  22  63  136  162 
Margin  4.3%  3.9%  12.8%  8.3%  1.3%  3.6%  7.1%  8.0% 
DD&A  NA  NA  NA  94  85  82  82  81 
EBITDA  NA  NA  79  22  107  145  218  243 
Margin  4.0%  1.6%  6.4%  8.3%  11.4%  12.0%  
Net Income  34  82  101  
EPS  7.30  17.67  21.79 
EV/Sales is a good sanity check for companies like this. Autoneum has the lowest multiple I can find and trades at a huge discount to the group average. Same thing goes for book value. I wouldn't use book value to determine what a company comprised of specialty assets is worth, but it's nevertheless a good indicator of whether you're in the right ballpark. Same thing as before, Autoneum trades at a large discount to the group and is again the cheapest company by a considerable margin.
Price/Book 

EV/Sales 

Autoneum Holding AG 
126% 

Autoneum Holding AG 
0.31x 





Average 
241% 

Average 
0.74x 





GKN PLC 
247% 

GKN PLC 
0.74x 
Autoliv Inc. 
202% 

Autoliv Inc. 
0.85x 
Leoni AG 
223% 

Leoni AG 
0.48x 
Continental AG 
221% 

Continental AG 
0.84x 
Tenneco Inc. 
NA 

Tenneco Inc. 
0.54x 
Johnson Controls Inc. 
224% 

Johnson Controls Inc. 
0.78x 
TRW Automotive Holdings Corp. 
266% 

TRW Automotive Holdings Corp. 
0.49x 
BorgWarner Inc. 
331% 

BorgWarner Inc. 
1.46x 
Valeo S.A. 
188% 

Valeo S.A. 
0.36x 
Michelin 
137% 

Michelin 
0.67x 
FederalMogul Corp. 
147% 

FederalMogul Corp. 
0.62x 
Tower International Inc. 
298% 

Tower International Inc. 
0.40x 
Faurecia S.A. 
364% 

Faurecia S.A. 
0.29x 
ElringKlinger AG 
288% 

ElringKlinger AG 
1.89x 
No single competitor is a perfect comp for Autoneum, but ElringKlinger AG (ZIL2 GR) is probably the closest in terms of products and company size. Somehow they manage ridiculously high margins (mid teens) so I wont single them out. I confess to only being in the process of figuring out why they are so much more profitable and what additional hope that might spell for Autoneum.

EV/EBITDA 

P/E 


TTM 
2011 
2012 

TTM 
2011 
2012 
Autoneum Holding AG 
4.8x 
3.5x 
2.3x 

NA 
10.9x 
4.4x 








Average 
6.5x 
5.5x 
4.7x 

13.1x 
11.9x 
9.0x 








GKN PLC 
6.4x 
5.7x 
5.0x 

10.5x 
9.9x 
8.5x 
Autoliv Inc. 
5.5x 
5.3x 
4.8x 

10.3x 
10.5x 
9.3x 
Continental AG 
6.3x 
5.4x 
4.9x 

18.8x 
10.0x 
8.1x 
ElringKlinger AG 
7.3x 
7.0x 
6.1x 

18.8x 
16.5x 
13.0x 
Tower International Inc. 
5.0x 
3.6x 
3.2x 

 
20.1x 
8.9x 
Tenneco Inc. 
6.6x 
5.6x 
4.6x 

NM 
13.7x 
9.5x 
Johnson Controls Inc. 
11.6x 
9.8x 
7.7x 

15.9x 
15.2x 
11.3x 
TRW Automotive Holdings Corp. 
3.6x 
4.2x 
3.8x 

7.6x 
7.4x 
7.1x 
BorgWarner Inc. 
11.3x 
8.8x 
7.4x 

20.9x 
17.6x 
13.6x 
Valeo S.A. 
3.3x 
3.0x 
2.7x 

8.7x 
8.0x 
6.7x 
Michelin 
4.8x 
4.3x 
3.8x 

9.2x 
9.0x 
7.8x 
FederalMogul Corp. 
8.8x 
5.4x 
4.7x 

10.1x 
10.4x 
8.1x 
Faurecia S.A. 
4.7x 
3.8x 
3.3x 

14.3x 
9.1x 
6.7x 
Leoni AG 
5.6x 
4.7x 
4.2x 

11.9x 
8.8x 
7.4x 
The downside looks pretty much baked into today's stock price. With an EV of SFr515m, the stock is trading at 4.8x trailing EV/EBITDA on trough margins. They earned SFr22m in EBIT in 2010 versus SFr85110m in prior "normal" years. DD&A runrate is about SFr82m, so the company is today being valued as if 12% EBIT margins are the rule. Even if Autoneum, for whatever reason, is only able to generate 34% margins it would still produce SFr145m in EBITDA and SFr7.10 in EPS, implying a fair value between SFr79120/share.
I have no unique insight on the auto industry, but I suppose I can cite a couple stats that leave me somewhat encouraged. 1) New car inventory in the US is near the lowest it's ever been, and by a rather significant amount. 2) Further supply tightness from Japan should help pricing (good for companies whose production/sales weren't hurt, such as Autoneum). 3) US and European light vehicles sales are still 2025% off prerecession levels. The main risk seems fairly obvious: deteriorating macroeconomic conditions affect consumer spending. I wont argue with anyone if they have strong feelings for against this industry right now.
The leverage is quite manageable at 1.2x net debttoEBITDA, and the company's capex guidance is modest, a level that offsets DD&A.
Plus you get a free kicker with the Swiss Franc exposure, if you're into that sort of thing.