market folly

We're posting up notes from the Sohn London conference 2017.  Next up is Dean Tenerelli of T. Rowe Price who pitched a long of Gestamp Automocion (BME:GEST).


Dean Tenerelli's Sohn London Presentation

Long: Gestamp Automocion (BME:GEST).  Gestamp is a car body builder

OEMs are outsourcing more component parts because they can’t keep up with development. Metal stamping and chassis production has traditionally been one of the least outsourced areas of car production. Currently 58% of bodies are built in-house but Gestamp thinks the outsourcing market will grow by 50% over the next 10 years. That would be a $20bn growth in the outsourcing market.

Whilst the OEM’s are dealing with the challenges of developing electric vehicles and autonomous driving it make sense for them to outsource the body building. They would rather spend the capex on other things.

Gestamp has developed hot stamp technology which allows them to produce bodies that are lighter and more durable. It is the market leader in this technology and they expect demand for hot stamping to grow at 13% per annum. Gestamp has relationships with the 15 largest OEMs. They are involved in the manufacture of 800 vehicles.

Gestamp has good visibility of future orders and production because they are involved early in the design process. They claim that 90% of their revenues out to 2019 are visible.

Revenue growth 2013-2016 averaged 9%. Global auto production has seen 2.5% to 3% growth. The outsourcing market is growing at about 4%. The hot stamp technology is growing at about 13%. The top-line can easily grow at 10%.

In 2014-16 they invested in 7 new plants and 2016-19 they will invest in 13 new plants. Margins have been depressed by the expansion. The plants will take time to build and reach full production. Margins have probably been reduced by 200 basis points and won’t improve until 2019.

ROCE 11-12% 2017, that’s 200 to 300 basis points depressed due to the investments in new plants. Forward P/E 19x 2019.


Be sure to check out the rest of the presentations from Sohn London 2017.