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Peugeot’s Losses Huge, S&P Cuts Rating To Junk Status

No Signs Of The Black Stuff Until 2011, At The Earliest

Peugeot’s losses were not as awful as its compatriot Renault, and analysts were impressed by its move to cut net debt to €2 billion, but Peugeot still expects to lose between €1 billion and €2 billion for the whole year.

Peugeot recorded a net loss of €962 million in the first half, compared with a net profit of €733 million in the same period last year before the industry was engulfed in a sales crisis. The value of sales was down by a fifth.

While investors lauded Peugeot’s efforts to cut debt, U.S. ratings agency Standard & Poors slashed its view on the company’s debt to junk.

“The downgrade reflects our expectations that Peugeot’s profitability and financial profile will deteriorate significantly owing to the prolonged weakness in European auto demand, which we now anticipate will persist in 2010 in contrast to our previous assumption of a market recovery that was a factor in our previous ratings,” said S&P analyst Barbara Castellano.

Castellano said the future looked gloomy because various government incentives to boost car sales in Europe will run out next year.

“We view any significant positive effects as unlikely before 2011,” she said.

Deutsche Bank believed that Peugeot is unlikely to make any money before 2011 at the earliest.

Nomura International was impressed by Peugeot’s net debt position, which was down to €2 billion, cut by €1 billion since the start of the year.

Credit Suisse analyst Stuart Pearson saw some merit in Peugeot’s actions, believing this would ease liquidity and rights issue fears.

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Pearson expects Peugeot to seek an alliance with another big manufacturer if it is to succeed long term. Peugeot already has joint ventures with Fiat, BMW, Ford, Renault and Mitsubishi.

“We believe Peugeot should use the current crisis as an opportunity to develop deeper development partnerships with other makers, potentially including platform sharing with another mass maker of small cars – Mitsubishi, Suzuki, Hyundai, a Chinese player, or even BMW – and joint ventures in Peugeot’s traditionally weak emerging markets,” Pearson said.

Neil Winton – August 15, 2009

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