TI Fluid Systems PLC (LSE:TIFS)’s consistent trading performance and potential market opportunities in the electric vehicles market are being “under recognised”, according to broker Peel Hunt.
The automotive parts supplier reported revenue of €1.52bn for the first half of 2021, with organic revenue growth of 32.7% representing a 350-basis-point beat of global light vehicle production in the same period, the broker noted.
“The company continues to outperform underlying global light vehicle production, generate strong underlying free cash flow and deliver a premium margin for a Tier 1 auto supplier,” analysts wrote in a note after the results on Monday.
“The chip shortage should have an impact on current-year earnings but this does not alter in anyway our confidence in the business model.”
What’s more, the analyst said, TIFS is “one of the best ways for investors to participate” in the global mass market production of hybrid electric vehicles (HEV) and battery electric vehicles (BEV).
“This profile is simply not reflected in a 2023E EV/EBITA multiple of just 4.2x,” they added, reiterating a ‘buy’ recommendation and 400p target price that compared to the previous 315.50p close price.
TIFS detailed at its capital markets day in April, the potential of the BEV and HEV opportunity for TIFS, with the two forms of electric vehicle making up 13% of global production respectively.
By 2028, BEV and HEV are expected to be 54%, according to HIS forecasts, which is a compound annual growth rate of 26%.
Based on internal combustion engines having potential content per vehicle (CPV) for the company of €200, a HEV is €700 and a BEV €400.
“On this basis, TIFS will experience substantial growth in vehicles with greater potential CPV and, in this context, TIFS has content on more than 50% of the 94 key BEV programmes identified to come to market in Europe and North America between 2020 and 2028 with 37% also having TIFS thermal product content,” the analysts said.
Before that opportunity asserts itself, global forecasts for auto production have been trimmed due to disruption in OEM production schedules from the chip shortage and other supply chain factors, leading Peel Hunt to adjust its forecast model to 82mln to 78mln units, which would be a 6% increase from 2020, before a rebound to 84.5mln units for 2022 and 89mln for 2023.
“Clearly if volumes recover earlier, we can revisit our forecasts. It is worth noting that US inventory days are currently just 22 against a norm of 60 which is not sustainable into the medium term.”