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Peugeot Does A Bit Better, But Full Year Loss Still Likely

Sharp First Quarter Sales Rise Bodes Well; DS3, RCZ Will Help

PSA/Peugeot-Citroen pleased investors with its latest profit guidance, saying first half operating profit would be “significant” rather than the previous projection of “positive”. Losses are expected for all of 2010 though.

This came after news the company’s first quarter revenues had jumped 27.5 per cent to €14 billion. The change in profit outlook might not sound like much, but investors seemed happy.

Peugeot said that although Western European car sales were likely to fall nine per cent in 2010 as scrapping incentives expire, it would likely increase market share because of new models like the Citroen DS3 and Peugeot RCZ

“The key point was the guidance towards an upward revision for the first half from “positive recurring operating income” to “significant recurring operating income, including a positive contribution from the Automotive Division,” said Alexis Albert of Nomura International.

Albert reckons Peugeot’s automotive division would record an operating loss of €235 million in the second half. For all of 2010, Albert sees an automotive division margin of minus 0.3 per cent.

“For 2011, we expect an operating margin for Auto of 2.1 per cent on the base of volume increase and cost savings,” Albert said.

  • Peugeot’s “Vision Future” plan for 2010 to 2012 includes cost cuts totalling €3.3 billion, and these key points –The need for less reliance on Europe and more global sales as Asia and emerging markets take most new car sales.
  • Changing demographics will influence demand and design of vehicles.
  • Worldwide convergence of CO2 objectives will increase demand for clean cars, with up to 20 per cent market share for electric and hybrid vehicles by 2020, and one million in Europe with 120 g/km in 2012.
  • Cost cutting plan to close the profitability gap compared with the average top five mass carmakers calculated as six per cent operating margin in 2008.

Adam Jonas, analyst with Morgan Stanley, raised estimates for 2010, although he still saw losses for the whole year.

“Our 2010 forecast still assumes the core auto division is loss making for the full year with a positive 0.5 per cent margin in the first half offset by a negative 2.4 per cent margin in the second half,” Jonas said.

Max Warburton, analyst with Bernstein Research, had some half-hearted praise for Peugeot.

“While it is hard to argue that Peugeot is truly prospering, and it’s almost pure exposure to small and medium European car markets offers relatively limited cyclical recovery potential, it does look to be on a recovery path of some sort,” Warburton said.

Fiat CEO Sergio Marchionne recently said that the next big upheaval in Europe would involve a French company, and after the failure of the proposed link between Peugeot and Mitsubishi, observers reckoned he was talking about Peugeot. Warburton doesn’t see any urgency for Peugeot to get involved though.

“Marchionne recently upped the pressure on Peugeot by forecasting that the “next merger will be in France”, but Peugeot does not look in a sufficiently desperate state for the family and management to surrender to M&A approaches,” he said.


Neil Winton – April 25, 2010

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