This is a cruel paradox for automakers. Two years after the outbreak of the health crisis, which was followed by other crises (shortage of semiconductors, war in Ukraine, etc.), its stock prices are still at the level of daisies. And this, while their profits have never been higher. In this way they managed to significantly improve their profitability despite the fact that sales were settling down or downright declining.
In Europe, the market is now a third lower than it was before the Covid crisis. However, Stellantis has greatly improved its profitability, reaching an operating margin of 14%. Renault, which makes most of its profits in Europe, even doubled its profitability in the first half.
The formula is already known: manufacturers have opted for the models with the highest added value, the best equipped and, above all, electric vehicles. Also, in a tight market, where demand struggles to find cars, they have stopped all discount sales.
Stellantis far from its January peak
Yes, but right now, the market is not a buyer. Renault, which generated nearly €1bn in cash in the first half and doubled its operating margin, is worth less than €8bn on the stock market. Just over his 44% stake in Nissan. If we remove its very lucrative banking subsidiary RCI Bank, there is nothing left. Stellantis is valued at €44 billion. A substantial figure, but that does not reflect either its profitability or its balance sheet (26,000 million in cash). The group’s share, the result of the merger between Fiat Chrysler and Peugeot Citroën, even fell 27% compared to its maximum reached in mid-January. It is true that prices have risen since the semi-annual publications (+11% at Renault from the results and +9% at Stellantis), but they are still very low.
” When comparing the ratios, the Stellantis group is undervalued compared to other stocks in the sector. However, we did not identify any element that could justify this discount, this irrationality is for us synonymous with opportunity. »highlights Benjamin Sacchet, associate director and wealth manager at Avant-Garde Investment.
Its PER (ratio between market capitalization and net income) is less than 3. By way of comparison, Volkswagen’s is at 4, while Renault is even higher than 5. The enterprise value to Ebitda ratio, which takes more into account the particularly high balance part of Stellantis, also shows a big lag. It is 0.61 while the average Cac 40 is around 9. Again, Renault has a better ratio (1.35).
Speculative support to Renault
” Renault share price is supported by the prospect of an initial public offering (IPO, editor’s note.) of its electrical activities planned for 2023. We are, therefore, in punctual and speculative considerations. Today, Stellantis is cheaper than Renault, it is not rational “, continues Benjamin Sacchet.
For his part, Frédéric Rozier, portfolio manager at Mirabaud, wonders:
“We have a feeling that Stellantis has already achieved impressive levels of profitability and will not be able to go much further, especially given the risk of recession and the price cap that could eventually occur. There are big doubts about ever-higher prices.”
And to add: Stellantis’ available industrial liquidity amounts to €60bn with €10bn of free cash flow in the automotive business expected again this year. This partly explains the mixed reaction of the markets, which would like more generous dividends or, at the very least, a share buyback program. “.
For Renault, analysts are less enthusiastic. Although they welcome the manufacturer’s spectacular recovery, they believe that the group, headed by the energetic Luca de Meo, suffers from a relentless comparison with Stellantis.
” Debt and cash generation are no longer problems at Renault. Especially since the group is benefiting from an interesting product effect with the Arkana and the arrival of the Austral, and of course with the Dacia box. But when we compare Renault with Stellantis, there is no comparison. », justifies Frédéric Rozier. Renault is doing better but remains more exposed than competitor and compatriot Stellantis should a recession hit. ” The potential is greater in Renault, but also the risk “, insists Frédéric Rozier.
A sector plagued with doubts
The main reason for this lack of love for the sector is due more to economic considerations, believes Benjamin Sacchet. ” The market is worried about the consequences of a recession in 2023, but we believe that the automotive sector is less cyclical than before. The level of margins and balance sheets allow the sector to be better prepared. An analysis shared by Frédéric Rozier: “ the market anticipates a recession, but at three times earnings on average, the sector is exhausted. We could opt for a valuation that amounts to five or even six times the Ebitda “.
Therefore, the automotive sector is far from dead. “ The average age of the car park continues to increase, Remember Benjamin Sacchet. It has already reached 12 years in the United States, and Europe is getting closer to this average, while it was around 9 years in the 2000s. It is a great reserve of growth. »
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