They are a supplier to all the leading automotive original equipment manufacturers, including Ferrari, Daimler, Aston Martin, Tesla, and Volkswagen. The majority of premium automobiles have Brembo brakes. They also supply to commercial vehicle and motorcycle manufacturers. Brembo is also a large supplier of brakes to racing cars, including Formula One.
I believe their main competitive advantage is economies of scale. Their high market share and high plant utilization rates allow them to leverage fixed costs over millions of units. They are also able to leverage their research and development spend over many units, allowing them to create superior products. They also have plants all over the world, giving them the ability to manufacture parts very close to their customers.
This combination of superior product and lower relative cost is what allows them to enjoy multi-decade relationships with many leading automotive original equipment manufacturers. Brembo’s close relationship with racing teams also allows them to stay on the cutting edge of technology.
Due to the fact that the business is cyclical, valuation becomes a little more difficult. The business has very little debt and plenty of liquidity; they should have no problem weathering a steep decline in the production of new autos. I’m forecasting mid-single-digit growth rates over the next five to ten years and returns on incremental capital of 20%. I think an intrinsic value of around €12 per share seems very reasonable, and we purchased shares at a healthy margin of safety to that number.