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Posts Tagged ‘Visteon Corporation (PINK:VSTNQ)’

The inimitable Distressed Debt Investing has another great analysis of Visteon (see my post archive here). Hunter says:

In my 8 years on the buy side, in distressed and high yield land, I have never seen a more consensus long than Visteon’s when issued equity. Simply put, Visteon’s equity to distressed funds is like Apple to Long/Short funds. Many people I know are long it (including myself) – The only thing I can’t figure out: who is selling?

Here’s Hunter’s analysis:

  1. Visteon owns 70% of Halla: At the USD equivalent market cap of ~$2B, gives us $1.4B of value
  2. Visteon owns 50% of Yanfeng: We will use a 10x multiple, ~$900M of value [note I am seeing analysts put a 12-15x multiple on this business]
  3. Cash at Exit: $785M
  4. Added Cash from Warrents: ~$100M

That gets us to $3.2B before adding any value to the US operations. From this we subtract:

  1. Term Loan: $500m
  2. Cash at Halla ~$150M (as to not double count)

Which nets us to $2.55B of equity value. Still before US operations. 54M shares outstanding translates to $47/share. Given the $56/share price today, there is a $9/delta or $500M. This is where the market is currently valuing Visteon’s US operations.

And that’s where we say: “You’ve got to be kidding me?”

Everyone in the market knows Visteon sandbagged their numbers. Why? Because management is getting a good deal of equity post emergence. But let’s say they are right – the 2011 plan calls for $550M of EBITDA. You have to deduct Halla from this which nets you do approximately $300M.

Therefore the market is valuing the US operations at 1.7x. For a company with a net cash position…Here are some 2011E EV/EBITDA comps for your reference: TRW: 4.1x, LEA: 3.9x, Fed Mo: 5.0x, Dana: 3.9x, Tenneco: 4.9x. Let’s be conservative and use 4.0x and see where the value gets us to: Add $1.2B to our sum of parts above, gets us to a $70/stock. And I will tell you, I am probably one of the more conservative estimates out there.

I want to know who is selling this stock? Is this side as one-sided as I believe it to be (at $55/share)?

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The excellent Above Average Odds Investing has a great analysis of Visteon Corporation (VSTNQ). Here’s the pitch:

Thesis:

The Visteon Corporation is a classic post reorg/special situation with a large margin of safety and substantial near-term upside potential.

Brief Business Description:

Visteon Corporation is a global Tier 1 supplier of automotive products to original equipment manufacturers (OEM’s). Visteon is a market leader in each of its three core product groups: climate, electronics, and interior systems. Visteon is geographically diversified and is not overly reliant on any one particular OEM. The company’s three largest customers are Ford, Hyundai/Kia, and Nissan/Renault (which make up 29%, 27%, and 9% of the company’s revenues respectively).

Opportunity Overview:

Visteon’s shares are currently trading on a “when issued” basis at roughly 3x 2011 EBITDA, and after backing out the company’s significant ownership in high growth subsidiaries, we believe the core Visteon business trades for between 1.5x and 1.7x EBITDA. Given Visteon’s multiple internal and external catalyst’s, highly attractive absolute valuation and the outsized spread between the company’s “when issued” shares and the already depressed valuation’s of its global competitors, we think that the stars are aligning for bargain hunting investors to generate spectacular returns of 30%+ in a short period of time with relatively low risk. Keep in mind that this isn’t “your father’s” Visteon, as the company will exit bankruptcy permanently improved and completely transformed, offering investor’s both a 1) quick, high-return, relatively risk-free arbitrage and/or 2) an inexpensive way to play any upturn in – or at least the stabilization of – global auto sales and economic activity in general.

The idea here is simple. As Visteon exits chapter 11, the near to medium-term upside will likely be driven by a combination of 1) a couple of imminent, high probability catalyst’s that should force the market to assign this company with a much more appropriate valuation on an absolute basis and relative to its peers and 2) various operational and financial enhancements that the company recently undertook while in bankruptcy should continue to yield visible and increasingly positive operating results for the foreseeable future.

Our expectation is that the initial roughly 30%+ will come almost instantaneously (within a month or so) as 1) the stock begins to trade regular way 2) equity analysts initiate coverage and 3) various institutional and index funds that have been unable to purchase the stock up until this point (due to restrictions on purchasing company’s in Ch. 11), begin buying in droves. Notably, the return assumption above assumes that upon re-emergence the company trade’s at an incredibly non-demanding multiple of 3.75x EBITDA or, to put it another way, in line with the cheapest automotive suppliers within the industry as a whole. Keep in mind that we think this estimate is very (almost unjustifiably) conservative given that on average Visteon’s peers tend to be considerably more levered, and typically possess both lower EBITDA margins as well as less attractive long-term growth prospects.

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