PSA Shows New 3008, Technology Inducing Mixed Reaction.
Some Investors Say PSA Investing Enough, Others See Profits Peaking.
Will France Sell Its Stake?
Peugeot-Citroen, now called the PSA Group, invited investors along to see its new 3008 compact SUV and take a sneak peak at upcoming new cars and technology, plus a look at the financial road ahead.
Reaction was mixed.
Investment bank Morgan Stanley wasn‘t impressed and believes PSA’s profit recovery from the depths of existential threat has just about run its course. Citi Research and Barclays Research had differing degrees of positivity.
PSA unveiled the new Peugeot 3008, set to make its public bow at the upcoming Paris Auto Show, and which will compete with the VW Tiguan and Kia Sportage. PSA also plans to introduce seven plug-in hybrids and four electric vehicles by 2021.
Barclays Research analyst Alexis Albert liked what she heard, which also addressed the notion that PSA had restored profitability mainly by slashing research and development.
“We disagree with what seems to be the wide-spread belief that PSA has under-invested. We think this comes mainly from looking at R&D to sales of the consolidated P&L that includes (components maker) Faurecia, which doesn’t need high investments and has under-invested. Restated to exclude Faurecia, we find that PSA actually spends more than Renault and FCA and isn’t too far from VW,” Albert said.
Albert said the plug-in hybrid, slated to appear in 2019, will be line with the competition in terms of timing.
Citi Research liked what it called a sensible approach to R&D which entailed following rather than leading innovation, but also had some worries.
“On paper that makes sense given the company’s structural challenges in terms of scale and brand position, but to our minds there is an element of doubt as to how competitive the new leaner PSA products will be, especially as key competitors – namely VW – are overspending. In theory a smaller more profitable PSA should be able to make better products, but the market seems reticent to reach that conclusion until proof is readily evident,” Citi analyst Michael Tyndall said.
The glass was half empty for Morgan Stanley, which said profit margins are close to peak.
“Peugeot continues to be supported by the thesis that it is building up substantial cash relative to its enterprise value. We do not see it that way. A large proportion of Peugeot’s fiscal 2014 and fiscal 2015 net cash generation has been achieved through working capital extension and asset sales. This is not sustainable,” said Morgan Stanley analyst Harald Hendrikse.
“We continue to believe that Peugeot expectations have already peaked. European growth looks set to slow as most country sales approach previous peaks and second half comparatives get much tougher. As growth slows, we suspect price and mix will deteriorate. Renault is taking share in France and in Europe with the new Megane. If first half 2016 Peugeot margins cannot again progress we think the shares could face further de-rating in the second half,” he said.
Will government sell?
Just to add more complications for PSA, the newspaper Les Echos reported that the French government is thinking about selling its 14 per cent stake, acquired a couple of years ago for €800 million as the company wobbled towards bankruptcy. China’s Dongfeng Motor Group purchased similar stake, as the family holding dropped to the same level.
PSA and the government remained silent.
There were unconfirmed reports that the Peugeot family was about to talk to the French government about buying part of this stake.
In April, CEO Carlos Tavares unveiled “Push to Pass”, which called for a tripling by 2021 of the previous “Back in the Race” plan of a two per cent automotive profit margin by 2018. The plan called for 26 new cars, eight commercial vehicles and a pickup truck, as well as the seven plug-in hybrids and four electric vehicles.
One new car will be unveiled every year for each of the brands – Peugeot, Citroen and DS, while feelers will be put out to test the water for a return to the U.S. market via car-sharing and mobility services.
In 2015, Peugeot-Citroen made a net profit of €1.2 billion, its first profit in three years, and compared with a loss of €555 million the previous year. Automotive operating profit was five per cent.
In 2014 Tavares set a two per cent profit margin goal for 2018, which at the time was ridiculed for being under-ambitious.