Should you invest in Unloved Versigent? It's a hidden treasure

Despite the failure of Versigent's initial public offering, the shares appear to be significantly undervalued

Is it worthwhile to purchase the company's shares and why is it going unnoticed?

Global industrial technology company Aptiv authorized the spin-off of its electrical distribution systems division into Versigent (NYSE: VGNT), a new publicly traded company, at the start of March. Investors were, to put it mildly, disappointed when the new business began trading at the beginning of April. The market ended the day below £28 per share, despite expectations that it would be willing to pay up to £31 per share.

However, the company reported £528 million in net income, £893 million in adjusted earnings before Ebitda, and £8.8 billion in revenue in 2025. Even though the share price has increased somewhat since the IPO, it is still only worth £2.5 billion, which seems cheap in comparison to earnings. Additionally, Versigent's leverage is only 1.3 times Ebitda, which is about the market average and significantly less than the market median of 2.6 times, in contrast to the majority of spin-offs, which are frequently loaded with debt to offload liabilities from the parent company, according to SandP Global.

What makes Versigent so despised?

Versigent is one of those companies that contribute significantly to the world economy but are frequently overlooked by investors. The company, which employs 138,000 people across 25 countries, has a significant presence and is intricately linked to the supply chains of large automakers, farmers, and energy storage companies.

Problems with BFIA today. According to its official statement, Versigent is "a global leader in the purposeful design and advanced manufacturing of low- and high-voltage electrical architectures." To put it simply, this means that the business creates, develops, and produces parts to increase the effectiveness of automotive electrical systems.

Versigent has a significant advantage because the original equipment manufacturers have always been willing to outsource this highly specialized and labor-intensive process. The company is already among the top three suppliers in every area where it works, and one out of every six cars made worldwideone out of every three electric vehicles (EVs)use its technology. Furthermore, full-service programs account for about 75% of sales. In these programs, Versigent and the manufacturer are linked throughout the design, development, testing, and production stages as the company becomes deeply involved in electrical-architecture design early in the development process.

The company's services are in demand in a world where electrical infrastructure is becoming more and more important and where cars are getting smaller and smarter. Because of the growing demand for the high-voltage equipment it develops and sells to power network and battery-storage providers, as well as EV charging systems, UBS has projected a 13% increase in revenue by the end of the decade.

But in this case, cash generation is more important than growth. According to UBS, Versigent's 2026 Ebitda margin will be 10.3%. Although UBS believes 100 basis points is more likely (the base case), the company has stated that it can drive 200 basis points of margin expansion by 2028. Even so, that would represent a nearly 10% increase over the already healthy level of revenue generation.

Automation is anticipated to result in savings. The company's biggest overhead expense is manufacturing costs, which account for 80% of sales. According to management estimates, 30% of its employees do simple jobs like stripping and wire-cutting. These procedures are primarily automated in its two Chinese factories, and management hopes to expand this to the rest of the company. As a newly independent company, Versigent should be able to identify and eliminate expenses more quickly than it would if it were a part of a larger group. However, there will probably be some short-term additional costs as employees settle into new roles and the company fills positions previously overseen at the group level.

A cash cow is Versigent.

Versigent is attractive because it generates money. By the end of the decade, UBS predicts that free cash-flow conversion on net income will reach 80%. Furthermore, analysts are only estimating "minimal capital spending" (roughly £250 million annually) for this time frame, so the majority of this should come from the bottom line. This suggests that there will be a healthy amount of cash available to return to investors for a business with an already sound balance sheet. According to Versigent's own estimates, there will be £1 billion in free cash flow during the two years leading up to 2028 (UBS has budgeted £830 million).

Cash returns might soon begin. Versigent's management claimed that the company only needed £400 million in cash for daily liquidity prior to the spin-off, but the post-spin-off balance sheet showed that it needed roughly £700 million. Versigent may have an additional £1.1 billion in cash over the next two and a half years until the end of 2028 when combined with its consistent free cash flow generation. After calculating Versigent's potential, UBS analysts produced some striking results. About 23% of free cash flow is distributed as dividends by the company's competitors. Versigent currently has an average yield of roughly 2.2%. According to UBS, the shares could yield about 3% if the company distributes 23% of free cash flow, or roughly £170 million, by the end of 2028.

That would leave roughly £930 million for share repurchases, which would be sufficient to repurchase 42% of the group's current outstanding shares, assuming the company decides not to pursue acquisitions. When all of that is taken into account, it appears that Versigent could give shareholders a return of roughly 44% of its current market value by the end of 2028. If that is insufficient, the company's free cash-flow yield is about 30% lower than that of its peer group. Versigent seems to be a bit of a secret treasure.