A closer look at Versigent
In yesterday's e-mail, I took quick glance at the five new stocks David Einhorn added to Greenlight Capital's portfolio – Comcast (CMCSA), Fortune Brands Innovations (FBIN), Primo Brands (PRMB), PayPal (PYPL), and Versigent (VGNT).
I invited my readers to tell me which ones they were most interested in having me take a closer look at. Thank you to the two dozen who did so!
By far, the most votes were for PayPal and Versigent. I don't have anything more to say about the former beyond what I wrote last Friday about its dropped acquisition:
To pressure PayPal, Advent and Stripe leaked to Bloomberg that they're walking away, which they knew would tank the stock. But I think they really want to buy the company and know it's a steal at their $50 billion offer. As the article noted, "Advent and Stripe could always opt to come back at a later date if the situation changes."
It's likely that they'll come back with a moderately higher offer (maybe $65 to $70 per share – a decent premium to yesterday's closing price of $61.47), PayPal will accept, and the stock will soar.
So today, let's take a closer look at Versigent...
Here's how David introduced the company in his second-quarter investor letter:
Versigent (VGNT) is a leading supplier of automotive wire harnesses that recently spun out of Aptiv (APTV). Although the business was viewed as a lower-growth, lower-margin part of APTV's portfolio, we believe VGNT is a high-quality supplier. Its business should benefit from the shift toward hybrid and battery-electric vehicles, which require significantly more of the company's products than internal combustion engine... vehicles. VGNT also has a durable customer base, as its products are deeply embedded in customers' platform design and engineering. Post-spin, management has opportunities to improve margins through automation while further diversifying the business in commercial vehicles and non-automotive applications.
Normally, I like to show 20 years of historical financials. But because Versigent was just spun off in April, data only goes back to 2022.
Revenue has risen slightly since then, while net income has done a bit better:
This reflects a bit of margin expansion – albeit from a low base:
Versigent has generated $450 million to $500 million in free cash flow ("FCF") in the past two and a half years – a nice increase from the previous two years:
Versigent's only capital allocation has been to pay a $1.6 billion dividend to its parent company as part of the spinoff. That leaves it with a modest $1.9 billion in net debt today:
Overall, this is a mixed financial picture. Like David pointed out, the automotive-supply business is low-margin and can be quite cyclical. I would love to see how the business performed from 2008 to 2009 and in 2020.
Growth has been tepid – again, it would be nice to see the long-term trend. But the company generates decent FCF.
Also keep in mind, businesses that are part of much larger corporations tend to be undermanaged. That's why spinoffs have historically been a good place to look for winning investments – especially when the valuation is attractive.
And Versigent's could hardly be lower...
The company went public on April 1 at only 3.9 times this year's expected earnings per share of $7.36 (11 analysts currently follow the stock).
Today, with the stock up nicely, it still only trades for 6.3 times this year's estimates and 5.9 times next year's:
With a valuation that cheap, Versigent is definitely worth a deeper dive. I'll do so in tomorrow's e-mail, so stay tuned!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. I hope some readers took my recommendation to go to the U.S. Open in New York City for less than $20 to see my friend, Frenchman Gael Monfils, turn back time...
On his 40th birthday last night, Monfils won his first-round match (highlights here), becoming the oldest man to win a match at the Open since Jimmy Connors in 1992 – also on his birthday!
My friend Amed and I had front-row seats (he spends 90% of his time in Ukraine and is my primary resource for allocating my friends' donations there):
It's Monfils' 18th and final Open in his brilliant 22-year career, in which he won 588 matches (and counting) and 13 titles, reaching No. 6 in the world.
He has always been one of the most popular players on the tour because he's an incredible showman (watch this shot he hit last night). And he's a great guy, which I can attest to – I spent the day on the golf course with him last Sunday.
Ukrainians consider Monfils one of their own because his wife, Elina Svitolina, is Ukraine's top-ranked player and is seeded ninth in the tournament. She and the other high-ranked Ukrainian, Marta Kostyuk (seeded 11th) both play today – and, of course, Amed and I will be there. Consider joining us!
Here's a picture of Monfils celebrating his win, with Svitolina in the front row, next to the guy in the red shirt:
