The Shape of U
The acute stage of the crisis may be behind us, but a chronic period of rising unemployment and depressed car demand may just be beginning. We cut FY''20e sector EBIT by 13% and turn more tactically cautious ahead of up to EUR40bn in expected Q2 cash burn. PSA (+) is our new top pick. In love with the shape of U... Unemployment to puncture hopes for a V shaped recovery? As lockdowns ease and stimulus arrives, a collective sigh of investor relief has seen the sector reclaim 50% of its peak 2020 losses in anticipation of a V-shaped recovery. However with the ''acute'' stage of the crisis now behind us, we may soon enter a ''chronic'' period of rising unemployment and tighter credit availability. Neither are good for car sales, and we expect 1H''21e to see a sequential decline in volumes as pent up demand and stimulus fade, and job cuts rise. Put simply, fears of a ''U'' (or even ''W'') shaped downturn may slowly return as recent momentum fades. Weak Q2 reporting set to come early... we cut FY20e sector EBIT by 13% We expect reporting season to come early this quarter, with many companies likely to pre-release due to the magnitude of variance versus consensus. In this note we thus update our earnings estimates for latest market trends and recent company feedback, and set out our current best estimates for Q2. This sees us cut our FY20e aggregate sector EBIT expectation by 13%, primarily driven by steeper Q2 losses, where EUR37bn in forecast cash burn looks likely to surprise negatively, not least due to the hefty destocking required in the quarter. Time for tactical caution: we favour the resilience of PSA (+) - our new top pick While the sector may still offer value appeal on a longer term view, we think it time for increasing tactical caution as the flow of good news fades. Indeed we now see only 7% upside on average to our 12m target prices, versus 30% when we published our Brutal Finale update in late March, arguing it was time to buy quality...
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23 Jun 20
Q1 results strongly impacted by COVID-19
Faurecia’s reported revenue was down 13.5% yoy, including a positive scope effect of €268m from the Clarion and SAS consolidation. Such revenue contraction happened in a quarter that saw worldwide automotive production down by 23.6% (according to IHS Markit). Furthermore, IHS Markit expects worldwide automotive production to be down 45% in Q2 and -34% in H1. Therefore, and taking into account Faurecia’s geographical sales composition, we expect a more severe revenue contraction yoy in Q2.
22 Apr 20
Lower than expected profit numbers
Faurecia’s organic revenue growth was -3.0% and its profit numbers were slightly down, whereas the dividend was raised from last year’s €1.25 to €1.30. We had expected this dividend increase although revenue and net earnings were slightly below our projections. Management sees organic 2020 revenue growth of -1% to -2% compared to a 3% fall of worldwide automotive production. However, the reported number will be up as the full consolidation of Clarion and the JV with Continental will both contribute.
17 Feb 20
Capital Markets Day
After organic revenue growth of 10.6% and 5.5% in the last two years and an expected fall of 3% in 2019, management sees turnover increasing by an annual rate of more than 5% through to 2022. By then, management sees consolidated revenue surpassing €20.5bn and the EBIT margin to reach 8% compared to more than 7% projected for 2019.
26 Nov 19
Q3 19 revenue only slightly below expectations and guidance unchanged
Management has maintained its full-year guidance for both revenue and operating profits, although revenue of €4.19bn was slightly below consensus projections of €4.27bn and our projection of €4.33bn. It continues to see sales (ex currencies) outperforming car production by between 150bp and 350bp and the EBIT margin to reach at least 7%.
17 Oct 19
H1 earnings pressure below the operating profit line
Faurecia’s revenue fell by an ‘organic’ number of 2.8%, whereas the reported number was down by 0.2% to just below €9.0bn. The discrepancy is explained by a positive 0.9pp contribution from currencies (primarily from Nafta) plus the first-time consolidation of Japanese Clarion from 1 April. These numbers have translated into a stable EBIT of €645m, but pre-tax earnings were down by more than 12% to €447m, whereas net earnings were up by 1% to €346m.
23 Jul 19
Euro weakness supported Q1 19 revenue growth
Faurecia’s reported revenue was up by 0.2% to €4.33bn in the last quarter, but it fell by 1.1% on a currency-adjusted basis. Excluding several new but small consolidations, organic growth was probably in the vicinity of -3.3%. The full-year reported growth rate will be much stronger as Japanese Clarion will be consolidated starting in Q2 and we expect it to contribute some €1.05bn alone.
23 Apr 19
Faurecia and Michelin join forces in hydrogen mobility
The two announced that they will jointly control Symbio which had been acquired in full by Michelin earlier this year. The joint-venture will develop hydrogen fuel cells and eventually produce and market them. They are intended for all sorts of vehicles including electric vehicles to extend their ranges. Another partner in this joint-venture (but not a shareholder) is Engie, the French integrated utility. Faurecia will continue to produce high-pressure hydrogen tanks. This will not be part of the joint-venture but is believed to help in getting closer ties to the vehicle manufacturers. Several vehicle manufacturers are currently testing hydrogen-powered cars. It remains to be seen whether this is an alternative to both combustion engines and electric vehicles. On one hand, emissions are about zero when driving the car and, simultaneously, the driving range is much longer than for current electric vehicles. However, to produce hydrogen a huge amount of power is necessary and only if this electricity is generated with green resources will it contribute positively to the environment.
12 Mar 19
Better than expected numbers, except for the dividend
Faurecia achieved revenue of €17.5bn in 2018, an increase of 3.3% (+7% in constant currencies). At the same time, EBIT increased by 9% to €1.27bn and net earnings by 15% to €701m. These numbers were about in-line with consensus expectations but higher than our projections. We had forecasted revenue of just below €17.0bn, EBIT of €1.17bn and net profit of €610m. The dividend proposal is €1.25 compared to €1.10 paid for 2017 while we had anticipated €1.30.
18 Feb 19
Tender offer for Clarion starts tomorrow
Faurecia had announced in late October (see our Latest dated 26 October 2018) that it intends to acquire Clarion, the Japanese producer of cockpit electronics. Hitachi (63.8% shareholder of Clarion) had already given its approval and now that the relevant anti-trust authorities have given their approval, the tender offer starts on 30 January and lasts until 28 February. Faurecia offers Y2,500 per share and it eventually intends to squeeze potentially remaining shares out.
29 Jan 19
Faurecia and Hella join forces in interior lighting
The two companies have formed a partnership for the development of innovative interior lighting solutions. Whereas Faurecia is a supplier of complete vehicle interiors, Hella is specialised in lighting. The aim of the partnership is to develop surface-lighting and dynamic-lighting solutions for a more personalised cockpit environment. Whether this cooperation will eventually lead to more than just this interior lighting partnership remains to be seen.
21 Nov 18
Faurecia buys into cockpit electronics
Management has agreed with Hitachi and Clarion to buy the latter. Hitachi currently controls 63.8% of Clarion, a Japanese supplier of in-vehicle-infotainment and digital audio systems. The purchase price is €1.1bn for revenue of €1.4bn. According to management, this translates into a Price/EBITDA of 5.7x. As Clarion did not show any sizeable amount of net debt at the end of March 2018 (c. €79m), the EV/EBITDA multiple is comparable.
26 Oct 18
Q3 revenue as expected and no profit warning
Faurecia’s revenue was up by 5.9% to just above €4.0bn (+8.3% currency-adjusted) which brought the 9M number to €13.0bn (+5.4%). The quarterly number is almost in line with our projected €4.05bn and marginally ahead of the consensus number of just below €4.0bn. Unlike other companies, Faurecia is not revising its full-year guidance, i.e. EPS is expected to come in at just above €5.00 while we have a projection of €5.09.
11 Oct 18
6.6ppt growth difference between reported and organic
Faurecia’s revenue increased by 9.3% to €4.32bn on a currency-adjusted basis, but the euro’s strength resulted in a reported growth rate of only 2.7%. The discrepancy was particularly strong in LatAm (23.9ppt) and North America (13.9ppt) and, division-wise, in Clean Mobility (8ppt). To reach our full-year revenue projection of €17.76bn, reported sales growth should be a good 5% in the remaining quarters.
20 Apr 18
2017 numbers not very different from our expectations
Faurecia delivered 2017 numbers that were very good indeed and management’s guidance for 2018 is also very optimistic. Because of both, we regard the dividend proposal of €1.10 (instead of our expected €1.20) as very conservative indeed.
16 Feb 18
Faurecia and Mahle join forces
Mahle (annual turnover of a good €12bn), controlled by the MAHLE-Stiftung GmbH, and Faurecia (revenue of some €20bn) will join forces to develop innovative interior thermal management technologies. These are necessary for electric vehicles so that energy consumption for air conditioning systems is limited or reduced more. Faurecia is a producer of complete interior systems (c. 25% of total revenue) while Mahle concentrates on the powertrain and engine peripherals (40% of its consolidated turnover) and air conditioning systems (c. 35%).
10 Oct 17
H1 numbers clearly ahead of our expectations and consensus
Faurecia’s revenue increased by 8% to €10.3bn in H1 17 whereas we had projected €9.92bn. Simultaneously, EBIT and net earnings were up by 20% to €587m and 28% to €314m, respectively. Our numbers were €529m and €252m, i.e. the company did clearly better than we had anticipated.
21 Jul 17
Almost double-digit revenue growth in Q1
Very strong growth in LatAm (+45% organic and +73% on a reported basis to €168m) and also in APAC (+17% to €688m) have allowed Faurecia to increase its ‘Value-added’ revenue by 9.8% organically and by 10% on a reported basis to €4.23bn. Fully-consolidated sales (i.e. including monoliths) were up by 9.3% to almost €5.1bn. Seating and Interior both increased their revenue by a good 11% (organically) to €1.79bn and €1.32bn, while Emission Control (now called Clean Mobility) saw a 5.5% increase to €1.12bn. Management mentioned new programmes for Ford and BMW which strongly supported Seating sales while Clean Mobility benefited from strong demand from truck manufacturers which includes Cummins, the engine manufacturer, a name that was explicitly mentioned. Interiors benefited from the first-time consolidation of two joint-ventures. One is with FCA in Brazil and the other with Chang’An in China. Based on the above numbers, management sees ‘Value-added’ revenue increasing by 6% on an organic basis in 2017 and the EBIT margin to come inbetween 6.4% and 6.8%. However, these latter numbers do not take monolith revenue into account. Finally, the EPS number is expected to be around €4.
12 Apr 17
Faurecia delivered what we had expected, and more
Consolidated revenue was unchanged at €18.7bn whereas EBIT increased by 17% to €970m. Both of these numbers are almost exactly in line with our projections. Net income of €638m (+72%) is clearly lower than our expected €710m. In spite of this, the dividend will be raised to €0.90 (+38%) vs. our anticipated €0.80.
09 Feb 17
Increasing its stake in a revolutionary Danish technology
Faurecia had a 42% stake in Danish Amminex Emissions Technology A/S, a company founded in 2005. It has developed an Ammonia Storage and Delivery System (ASDS) which, according to the company, almost completely eliminates NOx pollutants (99%) from any diesel engine. Faurecia is now increasing its stake to 91.5%.
14 Dec 16
Faurecia goes for connected cars
The company has entered into exclusive negotiations with Parrot Automotive, a French company involved in infotainment and connectivity solutions for the auto industry. Faurecia’s ultimate aim is to control Parrot fully. The first step will be an initial Enterprise Value investment of €20m which will give it a 20% stake. In addition, it will subscribe to a convertible bond that allows it to increase its stake to 50.01% in 2019. By 2022, Faurecia would be allowed to own all of Parrot’s equity.
07 Dec 16
Q3 16 revenue missed expectations
Consolidated sales fell by 1.9% to €4.24bn in the last quarter thus translating into 9M turnover of €13.77bn, a fall of 0.3%. Management blames the currency movement for this disappointment, which is a good €130m below the consensus median and slightly short of €90m below our expectation.
14 Oct 16
Profits have skyrocketed in H1 16
Consolidated sales increased by 0.5% to €9.53bn but EBIT was up by 28% to €490m and net earnings by 56% to €245m. While the revenue number is slightly lower than our projected €9.68bn, the two profit numbers are clearly higher (€437m and €195m, respectively). As a result of these good profit numbers, management raises its full-year operating margin guidance from ‘4.6-5.0%’ to a ‘minimum of 5.0%’.
26 Jul 16
Management’s 2018 projections see revenue rising by 6% annually
Simultaneously, it sees the EBIT margin reaching 6% in two years’ time. To achieve this, Faurecia intends to ‘expand its technology offer focused on the industry megatrends and on environmental protection’. It intends to ‘rapidly expand those product lines with strong technology content where margins and growth rates are significantly above the group’s average’.
19 Apr 16
Revenue growth at a standstill in Q1 16
Faurecia is only consolidating a minor activity of Exterior in 2016 as the remainder has been sold to Plastic Omnium. As a consequence, it has restated its 2015 numbers. Based on this new revenue number of €4.65bn (instead of last year’s stated sales of €5.14bn), revenue was up by 0.1% to €4.66bn. On a like-for-like basis, sales increased by 4.4%.
15 Apr 16
Faurecia changes its governance structure
Starting on 1 July 2016, the positions of the CEO and the Board’s Chairman will be split. Yann Delabrière, currently occupying both positions, will become the Chairman of the Supervisory Board and Patrick Koller, currently the group’s COO and EVP Automotive Seating, will become the CEO. We very much appreciate this decision as will, most likely, some (or most?) of Faurecia’s clients. The company continues to be controlled by Peugeot but the helm of the management team is no longer occupied by a former Peugeot manager. Consequently, if auto manufacturers other than Peugeot feared of the passing on of know-how to Peugeot in the past, this threat, even if it was very unlikely and only theoretical, is diminishing.
14 Apr 16
Superb 2015 numbers and a good outlook for 2016
Faurecia’s revenue and profit numbers (except for net profit) are above our projections and also above consensus numbers. As management expects further revenue and profit margin growth in 2016, it proposes a dividend of €0.65 (€0.35 was paid for 2014) instead of our envisaged €0.50. The group increased sales by 10% to €20.7bn (we had expected €20.3bn) and EBIT by 36% to €913m (our projection was €840m). Net profit after minorities amounted to €370m (€371m was our forecast), an increase of 123%.
11 Feb 16
Exteriors, the least profitable division, is to be sold
This division, which primarily produces bumpers and front-end modules, will be sold to Compagnie Plastic Omnium for an enterprise value of €665m during the course of 2016. The division showed sales of €2bn in 2014 and an EBIT of €54m. Faurecia will initially repay net debt but intends to eventually invest the proceeds in value-added technologies of its other three divisions.
15 Dec 15
VW and Faurecia: a very special relationship
The following is the summary of today’s report in FAZ: Without giving any notice to the public, Faurecia Automotive GmbH, the German subsidiary of Faurecia, has lost its Chairman of the Supervisory Board, Thomas Sattelberger. VW is Faurecia’s single most important client (a good 20% of revenue) and Sattelberger had publicly stated that Winterkorn should leave the company just a few days after the diesel scandal came to the surface. In mid-October he called VW an ‘authoritarian regime’ and the new CEO Müller and Chairman of the Supervisory Board Pötsch ‘co-perpetrators of the ancient regime’. Finally, he called the powerful Head of VW’s work council Osterloh a ‘covert CEO’ and a ‘whip’. All of this seems to have been enough to let him go. We agree with his views and do not accept the CFO having become the Chairman of the Supervisory Board in one step. Müller has run Porsche before and although this subsidiary is also involved in cheating emissions, he has been sold to the public as being capable of cleaning up the mess. In fact, both Müller and Pötsch have closely cooperated with Winterkorn for several years. However, Faurecia has done well in this ‘cosy’ environment. The company was and is willing to sponsor VW’s Bundesliga club VfL Wolfsburg by providing the team seats with Faurecia’s logo prominently presented. As Faurecia is hardly selling any of its products directly to consumers, these ‘advertising’ costs do not make a lot of sense, except if VW has requested this ‘investment’.
18 Nov 15
Revenue growth moderated in Q3 15, but less strongly than expected
Faurecia’s revenue increased by 8.3% to €4.74bn in the last quarter which brought the ytd number to €15.25bn, an increase of a good 11%. Our current full-year sales forecast of €20.3bn leaves slightly more than €5bn for the final quarter. This seems to be rather low as it suggests turnover will fall marginally compared to Q4 14.
25 Oct 15
H1 15 was as strong as expected
Faurecia increased revenue by almost 13% to €10.5bn. Simultaneously, EBIT skyrocketed by 36% to €424m and net profit after minorities by 78% to €157m. All these growth rates are based on the numbers that were reported for H1 14, i.e. not on adjusted numbers. While revenue is some €0.5bn higher than expected, EBIT is in line with our projected €420m while net profit is below our number of €175m. For the full-year, management almost maintains its guidance except that the profit margin improvement in North America (27% of H1 15 revenue) is now expected to be stronger than before (up by more than 120bp vs. more than 100bp).
24 Jul 15