Author Topic: ST - Sensata Technologies Holding NV  (Read 5975 times)

Schwab711

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ST - Sensata Technologies Holding NV
« on: September 16, 2015, 04:04:56 PM »
Sensata Technologies Holding is incorporated under the laws of the Netherlands and conducts its operations through subsidiary companies that operate business and product development centers in the United States (the "U.S."), the Netherlands, Belgium, China, Germany, Japan, South Korea, and the United Kingdom (the "U.K."); and manufacturing operations in China, Malaysia, Mexico, the Dominican Republic, Bulgaria, Poland, France, Brazil, the U.K., and the U.S. We organize our operations into the Performance Sensing and Sensing Solutions businesses.

In laymen's terms, they manufacture high-tech sensors that are connected to the internet. These sensors are part of the Internet of Things (IoT), which is a fast growing sector that GE is making some large bets on. Rosy projections and well-liked industries are expensive and ST's valuation is no different. I was hoping others knew more about the company and industry since it seems like a high-growth area.

2014 revenue was up 21% y/y, finally matching investor expectations, after increasing between 3%-5% in 2012 and 2013. It's a fairly "capital light" business (that isn't good or bad), with gross margins around 33%-35% and total expenses around 18%-20% of revenue consistently. I'm guessing "capital light" doesn't matter in ST's case because they don't show operating leverage and this will only be a solid investment if the growth outpaces the lofty expectations. The business model doesn't really imply future operating leverage either. In ST's case, it seems like it will be easier to contract in bad times than it will be to grow to meet orders, since I think they rely on the availability of skilled labor. I would want to know more about how they manufacture their sensors prior to investing.
« Last Edit: September 17, 2015, 08:34:45 AM by Schwab711 »


ATLValue

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Re: ST - Sensata Technologies Holding NV
« Reply #1 on: September 16, 2015, 10:51:11 PM »
I know a little about Sensata, it is a very interesting company. The company's sensors are very exposed to the automotive end market (60% of revenues) which is interesting because they are usually spec'd into models that are in production for on average 7 years. The development time for every new model is also at least 4-5 years so it has very sticky customer-intimate relationships. They don't have much competition either, their primary competitor is Bosch and Denso which market entire sensor packages which are slightly different than the design specific sensors that Sensata sells. Given their exposure to automotive a key input will be your view on NAM auto sales which seem high (but the average age of the fleet is old)....

They are based out of Massachusetts and only reincorporated into the Netherlands after being purchased by PE. The IP is held in the offshore entity and because of the royalty relationship that was created in the new legal structure their tax rate is very low, this seem like a permanent advantage but I believe the favorable tax rate will gradually diminish over time.

I'm not very familiar with management as they are relatively new. I also think they are actively pursuing M&A which has inherent risks so that is something to consider as well.

As far as the "internet of things" I think that is mostly marketing jargon, their business is sensors - pressure, temperature, positioning etc. I agree that they have attractive content growth (5% annually) but I don't see this accelerating much more because the "internet of things" theme, I could be wrong but I don't think internet of things will substantially increase sensor content.

I'm not up to speed on their valuation so no comment on that front.

giofranchi

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Re: ST - Sensata Technologies Holding NV
« Reply #2 on: October 02, 2015, 06:22:30 AM »
It seems they are selling for 15 times 2015 ANI. Quite low.
The problem is: how will their ANI be affected by the recent mess with Diesel Engines?
Any idea?

Cheers,

Gio
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walkie518

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Re: ST - Sensata Technologies Holding NV
« Reply #3 on: April 10, 2017, 12:50:55 PM »
It seems as though this topic got dropped?

Bain carved out a division from Texas Instruments, old enough to be a Ben Graham favorite at one point, and bought a small division of Honeywell to create what today is Sensata. 

Since Sensata has fixed a troubled portion of the balance sheet (ie pension liabilities) and refocused manufacturing capabilities. 

Management has not made any large acquisitions in a little bit, though still in the "playbook" according to CEO Martha Sullivan. 

Though Bain levered its investment, it might be worth noting that the Sensata acquisition price plus the acquisition of additional investments since add to a figure well over the company's current market cap.  Not that this is a measure of value, but perhaps a way of coming to grips with what the company's stated book value is versus the underlying value of the business particularly since management believes they can buy businesses and make them much better. 

The risk is that Sensata overpays.  This may have happened with the last two big acquisitions, though sales growth speaks to the operational improvements.  Sensata is also in process of paying down debt.  Perhaps this makes refinancing at more attractive rates in the future possible. 

The company's definition for "long-term" appears to be somewhere around 5 years.  During this period, it's anticipated that net margins (I assume "adjusted" here) might grow up to 21% of sales.  Assuming that this can happen, at today's sales, we see more than doubling of GAAP net income.  If Sensata gets half of the way there, we still see a meanigful impact to GAAP net income over that period. 

Any one spend any more time on this one?  Where are the cliffs?

fisch777

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Re: ST - Sensata Technologies Holding NV
« Reply #4 on: April 13, 2017, 08:59:02 AM »
They appear to be good, no-nonsense operators with a penchant for integrating acquired businesses and maintaining strong relationships with OEM engineers.  These are primarily engineer-to-engineer sales, so the importance of these relationships and Sensata's integrated role in OEM R&D for future vehicles cannot be overemphasized.

There is pretty clearly a content growth tailwind, as Sensata benefits from increasing importance of emissions control, fuel efficiency and safety features.  Autonomous is a little unclear, but there is optionality with their LIDAR play. 

The obviously cliff is a global downturn in auto sales.  I think investors are overly focused on US SAAR peaking, when European OEM is larger part of business and Asian is growing faster.  Even if US "peaked", it appears more likely to plateau at a relatively high level (17M+), which is great for the company.

Right now, they are clearly laser-focused on deleveraging balance sheet versus doing add'l M&A or repurchasing shares.  I think investor/CRA feedback in Q415/Q116 led them to this decision, which is probably wise, especially in light of high M&A multiples out there.


Schwab711

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Re: ST - Sensata Technologies Holding NV
« Reply #5 on: April 13, 2017, 09:50:27 AM »
Not sure if luck, coincidence, or good capital allocation but the timing of their buybacks has been ideal. They bought a lot in 13' and 14'  when stock was relatively cheap and nearly stopped the program in 15' and 16' when the stock was more expensive.

I really like companies that display patterns of behavior like this. Generally not a deal breaker/maker either way and for ST it's probably not even worth mentioning in an investment write-up. Just an interesting detail that could affect confidence/conviction. I forgot about this company but I remember thinking there were a lot of small positive details present that are relatively uncommon to see.
« Last Edit: April 13, 2017, 01:51:22 PM by Schwab711 »

kab60

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Re: ST - Sensata Technologies Holding NV
« Reply #6 on: April 13, 2017, 12:35:25 PM »
Just had a quick look. The compensation scheme seems pretty decent (EPS growth and ROIC targets). As well as meaningful CEO ownership. Trading at 13 x FY17 adjusted (not sure what they've removed? Stock comp?) EPS guidance and a long term target of 21% net margins. Seems impressive. But isn't it just a leveraged manufacturer of fancy car parts, ie very dependant on car sales (thus earnings might be at a cyclical high)? Only spent 45 mins on this so sorry about the ignorance.

kab60

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Re: ST - Sensata Technologies Holding NV
« Reply #7 on: May 07, 2017, 01:31:59 AM »
The more I research, the more I think this looks interesting. Management seems quiet impressive, has a long historiy with the Company, have skin in the game and seem to invest for the long term while constantly working to increase short term earning by driving out cost. It also generates a ton of cash. I just have no idea as to what tax rate to expect going forward; anyone have some insight?

walkie518

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Re: ST - Sensata Technologies Holding NV
« Reply #8 on: October 11, 2018, 12:00:48 PM »
ST is trading near 52 wk lows and looks pretty appealing here...as everything is selling off, it might be an interesting place to invest should the stock decline another 5-10%

Anyone have thoughts on the Chinese business?  My guess is that despite the brouhaha, the China business should at least double in the next couple years?  Thoughts?

fisch777

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Re: ST - Sensata Technologies Holding NV
« Reply #9 on: October 12, 2018, 10:29:23 AM »
It's a nice business with capable, transparent management.  I was invested for a few years, but the cyclical risk was always looming in the back of my mind.  Management does like to tout how (relatively) well they performed in the 08-09 downturn, but IIRC there were some major plant transitions going on simultaneously, which helped cushion the downswing in decremental margins.  They are obviously trying to build out China / non-auto businesses to spread cycle exposure, which I think they are doing.  Also, the stock definitely trades on US auto cycle sentiment, when that segment is <20%.  That said, we are probably on the wrong side of that cycle. 

I think I will wait until sentiment bottoms out again like in 2016.