May 5, 2022
We wrote about Vontier Corporation spin-off from Fortive Corporation back in September 2020: “Vontier Spin-Off: Beware When You Are Promised Something For Free.”
Vontier financial performance proved to be better than we estimated at the time of the spin-off using annualized H1 2020 Pro-Forma Adjusted EBITDA.
Despite this the stock did not perform well and still declined to a low of $22.21 in March 2022. The shares started trading at about $28 back in October 2020.
Even assuming that Vontier will always be valued at a lower multiple due to the fact that it derives a majority of its revenue from retail fueling equipment and technologies, we think that investors perception of company’s story is changing and might improve even more in the future.
First, in 2021 the company made a large acquisition of DRB Systems, a provider of solutions to the car wash industry, for $956 million.
Second, Vontier has a number of investments in the electric vehicle space to “guarantee” that the company will not be left behind by these trends.
Third, company’s financial results during past two years of covid proved to be resilient and it is reasonable to believe that there is a good chance this resilience will continue into the future.
Fourth, Vontier has very low capital expenditure requirements what provides a very attractive free cash flow generation profile.
Company currently trades at an EV/EBITDA (FY 2021 EBITDA) valuation multiple of x9.5. Assuming 5% EBITDA growth and x12.5 EV/EBITDA valuation multiple, in three years Vontier shares could be valued at $55.79.
This would provide an upside of 107% percent over the next three years.
We think that Vontier spin-off story was tested over the past two years and currently view it as an attractive long-term investment from an event-driven and value perspective.