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Morningstar | TomTom Shares Surged 13% After Talks of Possibly Being Acquired; Shares Now Fairly Valued

TomTom stock, which was 4-star, spiked nearly 13% on Oct. 29 due to reports suggesting that after the stock’s recent sell-off, TomTom might have become an acquisition target by companies such as Audi, Daimler, HERE (partially owned by Audi, Daimler, and BMW), and Apple. This was first reported by TMT Finance and later mentioned in the Financial Times. With such a reaction to the report, TomTom is now back in 3-star territory, as in our view, speculations of the firm being bought out may be mostly priced in. The stock is now trading at only a 0.94 price/fair value. We are maintaining our EUR 8 per share fair value estimate.

According to the article, interest in purchasing the entire company likely came about after TomTom put its Telematics business up for sale in late September. TMT Finance also said that its sources value TomTom between EUR 2 billion and EUR 2.5 billion, comparable with our current EUR 2 billion (or EUR 8 per share) valuation of the firm.

In our view, such interest in TomTom, if true, could be a defensive move (rather than an offensive one) by automobile firms or technology companies, as some may be fearing Google’s encroachment into what may initially be the infotainment space, but could lead to gaining further traction in mapping and self-driving, as we mentioned in our Sept. 27 note. We note the article also mentions that Apple may be looking to bid on TomTom as it may want to avoid the risk of its mapping data provider ending up in the hands of a competitor.

As a reminder, talks about the sale of various assets have been surrounding TomTom for some time, and some were confirmed on Sept. 27 as the firm said it had begun to shop around its Telematics business.

If the firm decides to only sell Telematics, we continue to think that segment could be worth around EUR 1 billion based on some of the larger acquisitions, such as the one of Fleetmatics by Verizon in 2016. Verizon bought Fleetmatics for $2.4 billion, which at that time represented trailing 12-month sales and EBITDA multiples of 7.5 and 25, respectively. By using a 20% discounted sales multiple, or 6, for Telematics, as growth in that segment has slowed, we believe it is likely that TomTom would get around EUR 1 billion for that business. This also represents 5.4 times our Telematics 2019 revenue estimate. We also discounted the EBITDA multiple that the acquisition of Fleetmatics represented by 20% and applied it to Telematics, which resulted in a possible valuation of EUR 1.2 billion. Our EUR 1.1 billion Telematics price estimate represents the average of the two.

Based on our current fair value estimate of TomTom, which is in the range mentioned in the TMT Finance article, if Telematics is sold, the remaining business likely will be worth around EUR 1 billion, which represents 1.6 times 2019 sales (excluding Telematics). We view this much lower sales multiple as justified, as TomTom’s consumer or PND business continues to decline at a double-digit rate. We think such a multiple also considers the significant deceleration in the Automotive & Enterprise revenue growth that is expected to be brought forth by the Renault-Nissan-Mitsubishi Alliance and Google agreement.