samedi 19 novembre 2016

TTM Technologies - TTMI

Introduction

This post presents a quick analysis and valuation of TTM Technologies (TTMI) based on figures from Q3 2016.

Business

Manufacturer PCB.

Thousands of customers but high concentration of biggest customers (Apple represents 20%, and five customers represent 35% of sales). However, good industry diversification.

Factories in China and US.

Cyclical, highly fragmented and competitive industry with heavy capex requirements.

Financial

There are hints of objective of 10% EBIT (conference call Q3 2016).

Net debt: around 800m$
Price: 13$, with 128m shares (without taking into account the (small?) possible dilution by 2020 due to convertibles).
=> EV: 2464m$
Based on 2,5b$ sales, EBIT with 10% margin would be 250m$ and EV/EBIT = 2464/250 = 9.9

Conclusion

Considering the lack of pricing power, the intense competition in China, the capex requirements, technology aspects, cycles in the industry, and the important debt (mostly with variable rate), I don't see any obvious discount at these prices.

The number of shares is constantly growing, but this may not be a bad thing if it is used for relutive acquisitions in a fragmented industry that could benefit from consolidation (as it seems to be the case with the latest big acquisition of ViaSystems).

One the positive sides, the synergy after the acquisition of ViaSystems in 2015 seem to materialize with the improvements of the gross margin, SG&A margins (but this is already taken into account in my model with 10% margin for the EBIT).

Considering the characteristics of the industry, I could be interested by an EV/EBIT at 5, and considering a lower net debt, i.e price per share of 6$ with 125m$ shares and 500m$ net debt for instance (assuming EBIT of 250m$).

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