This is a cruel paradox for automakers. Two years after the outbreak of the health crisis, which was followed by other crises (semiconductor shortage, war in Ukraine, etc.), their stock prices are still at daisy level. And that while their profits have never been so high. In this way, they managed to significantly improve their profitability, although sales calmed down or even declined completely.
In Europe, the market is now a third below where it was before the Covid crisis. However, Stellantis has greatly improved its profitability, posting an operating margin of 14%. Renault, which generates most of its profits in Europe, even doubled its profitability in the first half of the year.
The formula is now well known: manufacturers prefer models with the highest added value, the best equipped and, above all, electric vehicles. Additionally, in a constrained market where demand is struggling to find cars, they have stopped all discounts on sale.
Stellantis is a long way off its January peak
Yes, but now the market is not a buyer. Renault, which generated almost a billion euros in cash in the first half and doubled its operating margin, is worth less than 8 billion euros on the stock exchange. Little more than its 44 percent stake in Nissan. If you withdraw your very lucrative banking subsidiary RCI Bank, nothing is left. Stellantis is valued at €44 billion. An impressive number, but one that does not reflect either its profitability or its balance sheet (26 billion in cash). The group’s stock, born of the merger of Fiat Chrysler and Peugeot Citroën, actually fell 27% from its peak in mid-January. While prices have risen since the mid-year releases (+11% for Renault since earnings and +9% for Stellantis), they are still very low.
” Comparing the metrics, Stellantis Group is undervalued relative to other stocks in the industry. However, we do not see any element that could justify this discount, this irrationality is for us synonymous with opportunity »stresses Benjamin Sacchet, Associate Director and Asset Manager at Avant-Garde Investment.
Its PER (ratio of market cap to net income) is under 3. For comparison, Volkswagen’s is 4, while Renault is even over 5. The enterprise value ratio on Ebitda, which takes particular account of Stellantis’ large balance sheet share, also shows a major lag. It sits at 0.61 while the Cac 40 average is around 9. Again, Renault has a better ratio (1.35).
Speculative support for Renault
” Renault’s share price is supported by the prospect of an IPO (IPO, note d. editorial) of its electrical activities planned for 2023. We therefore assume one-off and speculative considerations. Today Stellantis is cheaper than Renault, it’s not rational ‘ continues Benjamin Sacchet.
For his part, Frédéric Rozier, portfolio manager at Mirabaud, asks himself:
“We feel that Stellantis has already reached an impressive level of profitability and cannot go much further, particularly given the risk of a recession and the eventual price cap. There are big doubts about ever higher prices.”
And to add: Stellantis’ available industrial liquidity is €60 billion, with €10 billion of automotive free cash flow expected again this year. This partly explains the mixed reaction from the markets, which want more generous dividends or at least a share buyback program “.
Analysts are less enthusiastic about Renault. While they welcome the manufacturer’s spectacular recovery, they believe the group, led by the energetic Luca de Meo, suffers from an adamant comparison with Stellantis.
” Debt and cash generation are no longer issues at Renault. Especially since the group benefits from an interesting product effect with the Arkana and the arrival of Austral and of course with the Dacia box. But if we compare Renault to Stellantis, there is no comparison », explains Frédéric Rozier. Renault is doing better but remains more vulnerable in the event of a recession than its competitor and compatriot Stellantis. ” The potential is greater at Renault, but so is the risk ‘, emphasizes Frédéric Rozier.
A sector plagued by doubts
Benjamin Sacchet believes that the main reason for this lack of love for the industry is more of an economic nature. ” The market is concerned about the consequences of a recession that would hit in 2023, but we believe the auto sector is less cyclical than before. Margin levels and balance sheets allow the industry to be better prepared. An analysis shared by Frédéric Rozier: “ The market is anticipating a recession but with an average of three gains the sector is sold out. We could aim for a valuation of five or even six times Ebitda “.
So the automotive industry is far from dead.” The average age of the car fleet continues to rise remembers Benjamin Sacket. It has already reached 12 years in the United States and Europe is approaching that average, while hovering around 9 years in the 2000s. It’s a large reservoir of growth. »