Car: Stellantis celebrates two years but still struggles to please the stock market

Posted January 17, 2023, 7:24 am

No bangs again this year. To celebrate its second year of existence this week, Stellantis, the automotive group born out of the marriage between PSA and Fiat Chrysler (FCA), will content itself with a message to employees on its internal communication channels.

However, the manufacturer may have reasons for neglect. The series of disasters that befell the sector in the last two years (shortage of semiconductors, rising prices of raw materials and then energy, armed conflict in Europe, etc.) did not prevent it from achieving impressive economic results.

The stock price is not tracked

In the first half of 2022, the operating margin reached a stratospheric 14.1% for the car with a net profit of €8 billion in the six months. According to analysts, the figures of the second half should be the same barrel.

But for Carlos Tavares, the group’s chief executive, and John Elkann, chairman of the board of directors, these successes are also synonymous with disappointment, as the stock market is not following suit. Since the birth of Stellantis, the price has risen only 14% and even fell 14.2% in 2022.

It’s certainly been a complicated year for auto stocks, but Stellantis remains the most extreme example of the sector’s stock market weakness, with a price-to-earnings ratio of just 2.5. “Surprisingly, the performance gap with rivals (continues to widen) penalizes the value of the move rather than supporting it,” marvels Thomas Besson in Kepler Cheuvreux’s latest note.

“Vicious Circle”

This is a very low price etcIt has become a vicious circle for Stellantis, the analyst continues. Investors find it suspicious when they ask why their peers aren’t buying such a cheap stock. More broadly, investors do not believe the group can sustain this level of performance over time.

On both sides of the Atlantic, inflation and its nose-popping recession await a sudden return to the stock market and a fall in margin levels. “Prices have increased by 30-40% over the last three years, but we can expect margin normalization through pressure on prices due to the macroeconomic context,” said Jefferies analyst Philippe Houchois. Tesla has also wildly unleashed the ball of price cuts in China, the US and Europe in recent weeks.

However, Oddo analyst Michael Foundoukidis notes that “it’s better to attack a recession with high margins than low.” The level of activity is only justified if the markets expect the results to collapse. What analysts think is impossible.

However, the group needs to prove itself in a less economically favorable environment to convince the sustainability of its model. The manufacturer, which will sell 6 million cars in 2021, says it can stay in the green even if sales fall by 60%. Management claims better management than competitors and 30% higher efficiency per dollar spent.

Demonstrate its profitability

Investors are forced to take Stellantis at his word because there is not enough background in front of this young group. But they don’t give him a blank check. Pierre-Yves Quemener, analyst at Stifel, continues: “2023 could be the right opportunity to demonstrate that the group can maintain its commitment to achieve an operating margin of more than 10% in all weather conditions until 2030.

The group can rely on its leverage to avoid a macroeconomic downturn and reassure the stock market. Michael Foundoukidis emphasizes: “Since the merger is still very new, the synergy has not yet fully paid off.” So the four technical platforms to be introduced by the 14 Stellantis brands will not arrive until the end of 2023.” The American branch should also benefit from the revival of financial captives, a traditionally very profitable activity. .

Lack of fame

“The payment of large dividends, as well as a possible spin-off from Maserati, could act as a catalyst for the title over the next eighteen months,” analyzes Thomas Besson. The group still needs to gain notoriety across the Atlantic in order to hope to expand its activities.

American investors have a hard time grasping the contours of the industrial beast before them. They certainly recognize the three American brands from FCA (RAM, Dodge and Chrysler, the latter of which went bankrupt twice before being taken over by the Agnelli family). But they ignore the other 11, mostly Europe.

Las Vegas meeting

The structure of the group divided between four cities (administrative headquarters in Detroit, Paris, Milan and Amsterdam) and three cites (Paris, Milan and New York) does not improve object clarity. Thomas Besson notes that “paradoxically, Stellantis is regarded as a European group, with the best part of its income coming from the United States. So much so that its competitors, Ford and GM, are more expensive than Stellantis, according to the analyst, but they are less efficient.

The group knows there is still a lot of outreach to be done across the Atlantic. It began by taking care of its presence at CES in Las Vegas two years in a row, emphasizing the group’s message of becoming a “tech company” with language as an element everywhere in its communications. Ed Ditmire, who recently joined Nasdaq as head of investor relations, is responsible for continuing this charm offensive.

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