Stellantis makes the leap in China and beats expectation in profitable areas

Stellantis Q3 23 trading update came in above consensus by 4% to €45.1bn (up by 7% yoy) mainly driven by a better-than-expected performance in margin-accretive North America (48% of group sales) and the Middle East & Africa (7% of group sales) regions. Stellantis was the least impacted by the strikes in the US with a €3bn dent in sales and a <€750m impact on pre-tax profit. Unsurprisingly the guidance remained unchanged with upgraded market growth. We confirm our positive rating.

H1 23: from good to better

Stellantis posted a slight beat on the top line, a strong beat on profitability and a massive beat on FCF for H1 23. This was supported by better utilisation of capacity as production constraints eased, and by continuously growing synergies. All regions contributed to the growth with resilient margins in North America and growing margins in EEU, while MEA posted a record 25%+ adjusted EBIT margin. The blurry FY23 remained unsurprisingly unchanged but Stellantis raised its market outlook for EEU

Another OEM to deliver a strong Q1, more unchanged guidance

Stellantis reported a slight 3% beat to the BB consensus with stronger-than expected North American revenues but weak development in Enlarged Europe. The “third engine” (i.e other regions) did quite well especially in the small but margin-accretive MEA region. The price-mix remained robust while volumes ramped-up owing to the improving supply situation. Unsurprisingly the FY23 market outlook and guidance were confirmed, neither reassuring nor disappointing investors.

FY22: consensus beating cash generation backing best-in-class shareholder returns

FY22 figures beat estimates, including an industrial FCF 9% above consensus at €10.8bn. This was triggered by a slower-than-expected margin decline in H2 and higher-than-guided synergies that reached €7.1bn (vs. €5.0bn in two years). Shareholders will enjoy a c.12% yield with a €4.2bn dividend payment and €1.5m buy-back programme. The FY23 market outlook is consistent with the forecast and the qualitative guidance rather sets a floor. Investors’ focus is on the margin slump, but a good execution

All eyes on Juventus with Exor and Stellantis potentially impacted

The Juve is prone to serious reputational problems following allegations of questionable accounting practices. The football club known as the Old Lady has been under investigation for over a year now. These inquiries seem to be getting steadily more serious and so much so that Andrea Agnelli, after resigning as Chairman of the Juve, has now been forced to resign from the BODs of Exor and Stellantis. Reputational fallout that could cost the Holding company and the car manufacturer dearly.

Q1 top-line surprises on the upside, FY targets reiterated

Q1 revenues were strong; driven by yet another exceptional quarter in North America, as well as a solid yoy recovery in South America, more than offsetting the chip shortage-induced weakness in Europe. Sustained underlying demand and low inventory levels have reinforced Stellantis’ pricing power, coupled with an improved product mix from successful new model launches, particularly in the high-end. Overall, execution remains top-notch, with STLA sticking to its FY22 guidance despite a more challe

Dare Forward 2030 sets bold ambitions but execution is key

A bit over one year since the merger, the highly awaited presentation of Stellantis’ long-term strategic plan has delivered on the scope and ambition worthy of a contender for the global automaker crown. CEO Carlos Tavares and his team brought out the big numbers and set forth tall commitments that will determine the path for the company as it tackles the challenges facing the industry in terms of electrification, digitalisation and carbon neutrality.

FY21: formidable results ahead of major strategic plan

Stellantis closed its first year with a terrific performance, beating expectations by a good margin and showing encouraging progress on the goals set out before the merger. North America remained the group’s main cash cow, although strong improvements were seen across all regions, particularly Europe and South America. Despite ongoing chip and raw material woes, Stellantis is looking at another double-digit margin result in 2022, putting in evidence the unwarranted undervaluation versus its peer

Turning the corner on Q3 chip hit

The semiconductor shortage dealt a serious blow to Stellantis’ production plans, given the c.600k units missed over Q3. That did not stop STLA from posting a respectable release, making up for the lost volumes through improvements, mainly on product mix, but also in pricing. The former being the result of the successful launch of new high-margin SUVs for the North American market, providing reassurance that the excellent profitability seen in this region over H1 should not be a one-time thing.

Stellantis smashes its H1 debut, FY margin guidance upgraded

The recently formed group published its first H1 results release, and it was knockout. All regions contributed positively to profitability, driven by a superb performance in North America on the back of strong pricing and a product mix dominated by high-margin pick-up trucks and Jeeps. Moreover, the FCA side of the European operations appears to be rapidly improving, and with €1.3bn in synergies already realised over H1 the group seems quite confident as it significantly upgraded its FY margin g

Solid Q1 revenues and upbeat FY outlook despite Q2 chip woes

The newly-formed group had a good first quarter with revenues outpacing the increase in volumes thanks to positive product mix and pricing effects. Market share gains in Europe and the Americas see Stellantis getting cozy amongst the heavyweights of the global car market, even if the semiconductor shortage weighed down on Q1 volumes. Nonetheless, the company remains confident on enduring the worst of the chip crunch (coming in Q2) and confirmed its FY21 guidance.

Off to a running start!

In the last publication from PSA and FCA as separate companies, the FY20 results put in display the very strong performance shown by both automakers at the end of the year. The record profitability achieved by PSA in H2 and FCA in Q4 serve as a base for a strong start for Stellantis, supported further by better than expected cash generation and an €18bn-strong liquidity reserve to kick-start the machine.

A remarkable Q3 in North America raises FY expectations

North America’s SUV & pick-up truck fever seems relentless, much to the benefit of FCA’s Ram and Jeep brands, which drove the NA division to a record adjusted EBIT in Q3. The outsized Q2 cash burn has also been fully reversed -and then some- with a €6.7bn-strong industrial FCF at the close of September. With production nearly back to normal in Europe and NA, and the reinstatement of the adjusted EBIT guidance, FCA’s FY20 prospects are looking up.

LIBERUM: Frontier Developments: Warhammer: Soft trading through key period

Frontier Developments (FDEV LN) - Expect change

Initial sales from the launch of Warhammer Age of Sigmar: Realms of Ruin have underperformed. After several disappointing new releases, the company has decided to reverse its strategy to diversify into adjacent game genres. We believe the increased focus should improve Frontier Development’s efficiency but may also increase its revenue concentration and volatility. The update and strategic change lead us to lower FY24 Adj LBITDA to £13.6m from £9.0m. We now also forecast no revenue growth over t

Strong H124 profitability and growth plan ambitions

PROGRESSIVE: IG Design Group: Strong profit growth, key strategy initiatives and quantified aspirations

IG Design Group delivered a 27% increase in adjusted PBT to $34.8m for H1 FY24 (to 30 September) with a significant reduction in net debt to $15.1m, as signposted in last month’s trading update. The adjusted operating profit margin was some 270bps higher at 8.6% (vs 5.9% in H1 FY23), the highest achieved since H1 FY20 ahead of the CSS acquisition. Management has provided more details on the key attributes and initiatives for its new growth-focused strategy. The group is on track to return to pre

Hardman & Co Research: Surface Transforms (SCE) - Funding for growth: Open Offer

In the past two years, Surface Transforms (SCE) has quadrupled its order book, raised monthly sales run rates from £0.2m to £1.0m and expanded its capacity four-fold to a £20m pa sales rate. A 3 November update pointed to production teething troubles. October sales of £1.0m were below prior estimates, so we significantly reduced our 2023 and 2024 estimates. We estimate PAT breakeven for 2H24. Initially from debt, SCE has the resources to finance capital expenditure from internal cash flow to rai

The Joy of Techs - Cavendish Technology quarterly sector note

£23.3bn in enterprise value has been returned to AIM technology shareholders over the past six years in the form of 51 public to private takeouts, including 10 in 2023 alone with the takeovers of Smoove* and Tribal announced in early October. With UK valuations appearing cheap and looking more attractive to potential acquirers, we take a moment to reflect on the trends of corporate and private equity bidders targeting AIM-listed technology companies going back to 2017, through the uncertainties

Accrol Group Holdings (ACRL LN) - Consecutive upgrades

H1 FY24 has delivered positive trading momentum with continued volume growth and an acceleration in margin recovery back to pre-pandemic levels.

Frontier Developments (FDEV LN) - Road to recovery

We are encouraged by Frontier Developments' announcement of an Organisational Review. We believe many video games companies inflated their expense bases during 2020 and 2021 and reduced focus on return on investment. Frontier now plans to reduce annual operating costs by up to 20% by the beginning of FY25. Frontier's Organisational Review returns the business' focus to optimising returns, leading us to forecast a recovery in adjusted EBIT margins to 5.3% in FY25 and 9.4% in FY26. We believe the

PROGRESSIVE: IG Design Group: H1 trading sees significant net debt reduction and profit growth despite lower sales

IG Design Group has delivered substantial growth for the H1 trading period (to 30 September) in terms of key profit measures and margins, together with strong cash flow and net debt reduction, both of which exceeded management expectations. These achievements have been attained despite lower sales compared to H1 FY23, with the adjusted operating profit margin in H1 FY24E therefore set to surpass last year’s 5.9%. As such, the overall results clearly show the ongoing benefits of the group’s strat

LIBERUM: New Energy Nuggets: Hydrogen - the future is green

SHORE CAPITAL - Portmeirion (PMP) - House Stock at 353p - Significantly undervalued

Initial Equity Trading Comments - 11 May 2023

Morning Note – 14 November 2023

LIBERUM: Ceres Power - Initiation - A Compellingly solid case

The Hardman & Co Monthly: October 2023

Feature article: Liquidity – shrinking when it’s most needed A review of liquidity in London since 2016 Summary ► Liquidity is the lifeblood of equity markets. ► Following the events at the Woodford Equity Income Fund (WEIF) in 2019, professional investors, increasingly, focus on liquidity when making investment decisions. ► However, this paper shows that liquidity declined significantly between 2016 and 2022. Our work demonstrates that, in 2016, the total value traded of trading companies lis