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Faurecia reported a slight beat to expectations on Q1 23 revenues, while sticking to its prudent FY23 targets. We read this as a reassuring set of results with no major announcements on the group’s liquidity; the #1 priority for the management and Investors. We confirm our positive stance on the company, backed by an improving supply chain situation, sound implementation of the deleveraging plan and strong ties with Chinese OEMs to hedge against a price war.
Faurecia Forvia SE
A strong start to the year for Forvia with a 7% sales beat driven by solid outperformance. The 2023 guidance was left unchanged, but good development on synergies, cost savings, organic growth and working capital could support a revision in H1. Divestments cash-in remains on-track. Outperform. What did we learn from the quarter? The Group''s Q1 performance was impressive with double-digit organic growth across all segments, supported by 400bps of regional mix and 240bps of pricing at Group level. On a regional basis North America was relatively weak, growing only in line with production, a trend that management does not see reversing this year. Forvia, however, grew 15% organically in China where LVP is estimated to have been down ~10% in Q1. This strong performance was supported by positive customer mix with growing exposure to Chinese carmakers like BYD. On pricing, management remains committed to achieve ~90% cost pass-through of the EUR400m of inflation expected for 2023e. Labour costs, estimated at ~EUR100m, should see a relatively low level of pass-through, while raw-mat costs could enjoy 100% pass-through rates thanks to the annualization of the price increases achieved in 2022. How does it change our investment view? We continue to see Faurecia as best placed amongst suppliers to benefit from an increasingly likely positive GLVP growth surprise in 2023e. This is because of its elevated financial leverage and its relatively high margins in China (~2x Group level), a market that could drive the positive surprise on volumes this year. The good trend in GLVP growth so far, as well as the encouraging commentary from management on the outlook for synergies, cost savings, organic growth and working capital is supportive of a potential positive revision of the 2023 guidance at the H1 stage. We remain ~12% ahead of consensus on adj. EBIT for 2023e. Beyond the positive earnings momentum, we see the announcement of further divestments as a...
Forvia is now on a solid footing thanks to strong FCF generation and to ~EUR1bn of divestments. The 2023 targets feel conservative and should translate into positive consensus revisions. In China, Forvia is clearly betting on the right horses with 40% local exposure to Chinese OEMs. Outperform. What did we learn from the quarter? The positive surprise today came from the FCF line, with the company generating ~EUR370m more cash than expected by consensus in 2022. This beat rightly overshadowed a slightly worse H2''22 margin of 5.0% (Cons. 5.3%), which was impacted by inflation. Forvia estimates the dilutive effect of inflation pass-through sales at ~140bps in H2''22. The 2023 guidance assumes flat GLVP and the 5.0-6.0% margin target appears conservative as it lies on the assumption of a 4.0% LVP decline in Asia, Forvia''s most profitable region, and of a full year without SAS, whose margins are accretive to the Group. Incremental cost headwinds are expected to be ~EUR400m in 2023e with a target pass-through rate of 90%. The FCF guidance was confirmed at 1.5% of sales (excl. factoring), equal to ~EUR400m, and includes Hella''s FCF target of EUR160-170m FCF for 2023e. How does it change our investment view? With targets for both 2023 and 2025 underpinned by several conservative assumptions, we believe that management laid the ground for more positive surprises on both earnings and FCF. Today marked an important turning point for Faurecia and we now expect the debate to finally shift from balance sheet concerns to the business. Forvia is executing well on its 2025 plan and the EUR31bn of order intake at an average operating margin 7.0% achieved in 2022 is an impressive result which reinforces the positive growth trajectory of the new Group. We increasingly like the China angle with Forvia''s elevated exposure to Chinese OEMs effectively providing a hedge against the growing threat of market share losses for its key historical customers both in China...
Faurecia’s FY22 results met the company’s guidance through the P&L and showed better than-expected net cash, lowering the closely-watched leverage ratio to 2.6x. The FY23 outlook backs the margin recovery scenario with decreasing cost headwinds, yet with a cautious view on global automotive production. Faurecia also raised its cost synergies assessment and announced a divestment for €540m, reaching its €1bn divestment plan. This answers investors’ debt concerns and raises speculation on: is there more non-core activity to off load?
With its Power25 CMD, Faurecia reset its mid-term targets to a more cautious level on trimmed worldwide auto production assumptions. Synergies with Hella were kept intact, with an upside potential as always, based on the usual prudence of Faurecia’s management. A focus was made on cash generation and deleveraging, eventually confirming that the structural benefits from the acquisition of Hella should account for the largest part of the NCF margin improvement. No dividend is likely to be proposed for 2023, a decision likely to be supported by investors.
With a FY22 guidance upgrade and a consensus-beating Q3 22 revenue figure, Faurecia at last came through although investor concerns about the company’s debt load the post-Hella acquisition seem to be overshadowing any reassuring daily business reports. The management reiterated its confidence concerning the €1bn (at least) divestment plan but only the materialisation of these divestments looks able to reverse the current doubtful sentiment. Market-wise, while Chinese OEMs are knocking at European doors, the likes of Faurecia could end-up being well positioned.
Q3 Sales beat expectations by ~4% and the 2022 Guidance was raised, but only at the top-line level. Still, the CFO was clear that the 2022 FCF breakeven target should be seen as a hard floor - he sounded confident both on the 2023 outlook and timing of divestments. Outperform. What did we learn from the quarter? Group performance in Q3 was encouraging, with a 3.6% topline beat, driven by better-than-expected results for Seating and Hella and a higher FX tailwind at 7.9%, (vs. Cons. ~5.9%). The ''22 guidance was raised by EUR1.5bn at the top-line level, supported by better GLVP and FX. The new guidance is still based on a conservative 3.9% GLVP growth forecast for ''22 (IHS at 6.0%) and implies a 15% GLVP drop in the last 2 months of the year. This perhaps explains why the higher topline did not translate, as we had expected, to an upgrade of the FCF target, which remains for breakeven in ''22. The CFO was clear on the call that the FCF target should be seen as an absolute floor and that a positive FCF should be expected at the higher end of the guidance range. The CFO guided for ''23 net fin. expenses in line with ''22 (vs our est. of EUR100m rise). How does it change our investment view? Today''s results strengthened our view that things are moving in the right direction for the new Group. An announcement on the divestment plan appears imminent, and we continue to see Hella''s Special Applications business, worth at least ~EUR500m, as the most likely candidate. The CFO sounded confident that even in an environment of no 2023 GLVP growth, the Group should be able to improve its margins and generate positive FCF. Cash generation should be supported by: lower inventories, which have been increased to protect business continuity over the winter; lower capex, expected to decline sequentially by EUR200m as the Group becomes more selective on order intake; and higher operating profit, thanks to the expected margin step-up. For our latest view on the name...
With shares down 70% ytd, Faurecia is caught between mounting recession fears and a highly geared B/S. We cut estimates to reflect lower GLVP in 23/24e and higher interest rates. Yet, we are confident in EO''s ability to generate EUR500m FCF p.a., enough to keep leverage in check. Leverage is high but looks manageable if global LV production holds up EO''s shares are pricing a fair probability of a rights issue. But with only EUR900m of the EUR4.2bn bridge loan (due in Aug''23) still to be refinanced and an average debt maturity of 4.4 years, these concerns may be overdone as long as Global LV production (GLVP) remains on a recovery path in 2023e. We stress-test the B/S''s sensitivity to different GLVP scenarios and conclude that a 10% drop in ''23 GLVP would be needed to put covenants at risk. In this scenario the remaining EUR700m of asset disposals planned, and not included in our analysis, would certainly help. Production outlook supported by record low inventories GLVP growth has surprised positively this summer, especially in N.A. and China, and we revise our ''22e forecast to +6.0% (from 5.8%). We revise downwards our GLVP forecast for 2023/24e by 2.5/2.3%, but our new estimate still implies GLVP growth of 6%/3%. We see GLVP (excl. China) remaining below historical average levels (2007-19) until 2025e, despite the restocking tailwind. Solid Q3 expected; guidance lift and increased confidence in FCF should reassure Q3 is likely to surprise positively, and our sales estimate is 4.0% above consensus. Pricing should continue to foster organic growth due to the high degree of pass-through of cost increases notably at Hella. We also expect Faurecia to raise its FY22 guidance and aim for a positive FCF. While a guidance lift is widely anticipated, positive FCF generation should help amid leverage concerns. We lower our estimates; TP cut to EUR18 (from EUR28). Outperform maintained We reduce adj. EBIT by 7% in 23/24e to reflect lower GLVP...
As planned, Faurecia is launching a capital increase as part of its financing for the acquisition of Hella. The most surprising thing remains the timing of this operation given that the company has until early 2023 to proceed with the €705m rights issue. This removes some uncertainty around the acquisition of Hella and its complex financing but raises questions on the management’s confidence in future market conditions.
Faurecia posted consensus-beating Q1 22 sales combined with a much more realistic FY22 outlook. The new guidance includes the 11-month consolidation of Hella and a +1% yoy expectation for global auto production (down by 6.2pp vs. last estimates). The improvement in the financial situation had been much needed; the dividend payment was thus cancelled, the debt covenant renegotiated and the asset disposal plan doubled. Anyway, the incomplete takeover of Hella is likely to be a drag on the company’s appeal until proven otherwise.
Faurecia’s standalone FY21 results and guidance met expectations at both the top line and margin, but the net cash flow line’s recovery looks weaker than anticipated. The US issue in Seating highlighted a lack of flexibility with the headcount. Faurecia reassured after two successive profit warnings in H2 21. The FY22 outlook offers upside risk on a cautious H1 22 volume assumption.
Faurecia released globally expected sales after its recent profit warning and guidance cut in late September. Some delays in volume and labour shortage in the US weighed on the Seating business, while this was offset by a consensus beat on Clean Mobility. Overall, Faurecia posted an 11.4% yoy organic decline, outperforming the market by 780bp. At current valuation, we believe that the share price does not fully reflect the opportunities offered by acquiring Hella.
Faurecia met consensus expectations on H1 21 sales, while posting a slight beat on the operating margin and cash generation, leading to a minor upgrade on the net cash flow guidance for FY21. A conservative speech and favourable seasonality in H2 21 call for guidance beat, but the market is concerned about the risk of an equity raising for M&A purposes.
Faurecia reported revenue up by 8.9% yoy including 12.2% yoy organic growth driven by China which overtook pre-crisis (Q1 19) figures. Despite an outperformance in all its markets, Faurecia underperformed worldwide automotive production by 60bp due to an unfavourable geographical mix. Q2 should see an acceleration of the outperformance as production in North America and Europe resumes. Lastly, the (too) conservative FY21 was maintained.
Faurecia and BAIC have just give birth to their 50/50 JV, expanding further the French auto supplier footprint in China. Though strategic for its Seating unit development, all eyes are currently on Hydrogen and the Symbio JV with Michelin. Additionally, the emancipation of Faurecia from Stellantis should come by the end of March 2021.
