This is a cruel paradox for automakers. Two years after the start of the health crisis, followed by other crises (semiconductor shortages, war in Ukraine, etc.), their stock prices are still at the level of daisies. And this despite the fact that their profits have never been so high. In this way, they were able to significantly increase their profitability, even though sales have stabilized or plummeted.
In Europe, the market is now a third below what it was before the Covid crisis. However, Stellantis has significantly improved its profitability, reaching a 14% operating margin. Renault, which makes most of its profits in Europe, even doubled its profits in the first half of the year.
The formula is now well known: manufacturers favor models with the highest added value, the best equipment, and especially electric vehicles. In addition, in a tight market where demand is struggling to find cars, all sales discounts have been discontinued.
Stellantis is far from its January peak
Yes, but the market is not a buyer right now. Renault, which raised 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 market. Barely more than his 44% stake in Nissan. If we take out his very lucrative RCI Bank branch, there will be nothing left. Stellantis is valued at 44 billion euros. A solid figure, but one that doesn’t reflect either its profitability or its balance sheet (26 billion in cash). The group’s shares, which emerged from the merger of Fiat Chrysler and Peugeot Citroën, even fell 27% from their high in mid-January. It is true that prices have risen after half a year publications (+11% for Renault after the publication of the results and +9% for Stellantis), but they are still very low.
” When compared to multiples, the Stellantis group is undervalued compared to other stocks in the sector. However, we do not single out a single element that could justify this discount, this irrationality is for us synonymous with opportunity. »emphasizes Benjamin Sakshe, Deputy Director and Asset Manager of Avant-Garde Investment.
Its PER (market capitalization to net income ratio) is less than 3. In comparison, Volkswagen has 4 and Renault even more than 5. The Ebitda Value of Enterprise, which takes more into account the high balance sheet of Stellantis, also shows a large delay. It is 0.61 while the average Cac 40 is around 9. Again, Renault has the best ratio (1.35).
Speculative support for Renault
” Renault’s share price is supported by the prospect of an IPO (IPO, editor’s note.) of its electrical activities scheduled for 2023. Therefore, we proceed from one-time and speculative considerations. Today Stellaantis is cheaper than Renault, this is irrational “ continues Benjamin Sakshe.
For his part, Frédéric Rozier, portfolio manager at Mirabaud, asks:
“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 a recession and the price cap that may eventually emerge. There are big doubts about even higher prices.”
And add: Stellantis has available industrial liquidity of 60 billion euros, with 10 billion euros of free cash flow from automotive activities expected this year. This partly explains the mixed reaction from markets that would like more generous dividends or at least share buyback programs. “.
For Renault, analysts are less enthusiastic. Even if they applaud the manufacturer’s impressive recovery, they feel that the band, led by the energetic Luca de Meo, suffers from an unforgiving comparison to Stellantis.
” Debt and cash generation are no longer a problem for Renault. Especially as the group benefits 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 Frederic Rozier. Renault is faring better, but remains more vulnerable than rival and compatriot Stellantis in the event of a recession. ” More potential for Renault, but higher risk ‘ insists Frédéric Rozier.
A sector engulfed in doubt
Benjamin Sakshe believes that the main reason for this lack of love for this sector has more to do with economic considerations. ” The market is worried about the consequences of a recession that could occur in 2023, but we believe that the automotive sector is less cyclical than before. Margin levels and balance sheets allow the sector to better prepare. Analysis shared by Frédéric Rozier: “ the market is expecting a recession, but on average, with a threefold increase in earnings, the sector is sold out. We could go for a valuation that is five or even six times the Ebitda. “.
Thus, the automotive sector is far from dead. “ The average age of the fleet continues to increase, remembers Benjamin Sasha. In the US, it has already reached 12 years, and Europe is approaching this average, while in the 2000s it hovered around 9. This is a big reservoir of growth. »