This is a cruel paradox for car manufacturers. Two years after the outbreak of the health crisis, which was followed by other crises (shortage of semiconductors, war in Ukraine, etc.), their stock market prices are still at the level of the daisies. And this, while their profits have never been so high. They thus managed to significantly improve their profitability even though sales were settling, or were downright down.
In Europe, the market is now a third below what it was before the Covid crisis. However, Stellantis has greatly improved its profitability, reaching 14% operating margin. Renault, which makes most of its profits in Europe, even doubled its profitability in the first half.
The formula is now well known: manufacturers have favored models with the highest added value, the best equipped, and especially electric vehicles. In addition, in a constrained market, where demand is struggling to find cars, they have stopped all discounts in sales.
Stellantis far from its January peak
Yes but now, the market is not a buyer. Renault, which generated nearly a billion euros in cash in the first half and doubled its operating margin, is worth less than 8 billion euros on the stock market. Barely more than its 44% stake in Nissan. If we withdraw its very lucrative banking subsidiary RCI Bank, there is nothing left. Stellantis is valued at 44 billion euros. A substantial figure, but which reflects neither its profitability nor its balance sheet (26 billion in cash). The action of the group, resulting from the merger between Fiat Chrysler and Peugeot Citroën, even fell by 27% compared to its highest reached in mid-January. Admittedly, prices have picked up since the half-year publications (+11% at Renault since the results, and +9% at Stellantis), but they are still very low.
” When comparing the ratios, the Stellantis group is undervalued compared to other stocks in the sector. However, we do not identify any element that could justify this discount, this irrationality is for us synonymous with opportunity »emphasizes Benjamin Sacchet, associate director and wealth manager at Avant-Garde Investment.
Its PER (ratio between market capitalization and net profit) is less than 3. By way of comparison, that of Volkswagen is at 4, while Renault is even greater than 5. The enterprise value ratio on Ebitda, which takes more into account the particularly high balance sheet part of Stellantis, also shows a big delay. It is 0.61 while the Cac 40 average is around 9. Again, Renault has a better ratio (1.35).
Speculative support for Renault
” Renault’s share price is supported by the prospect of an IPO (IPO, editor’s note.) of its electrical activities scheduled for 2023. We are therefore on one-off and speculative considerations. Today, Stellantis is cheaper than Renault, it’s not rational “, continues Benjamin Sacchet.
For his part, Frédéric Rozier, portfolio manager at Mirabaud, wonders:
“We have the feeling that Stellantis has already reached impressive levels of profitability, and will not be able to go much further, especially in view of the risk of recession and the price cap that could eventually occur. There are big doubts about ever higher prices”.
And to add: Stellantis’ available industrial liquidity amounts to 60 billion euros with 10 billion euros of Free cash flow on the automotive activity expected again this year. This partly explains the mixed reaction from the markets, which would like more generous dividends or, at the very least, a share buyback program “.
For Renault, analysts are less enthusiastic. Even if they salute the manufacturer’s spectacular recovery, they believe that the group, led by the energetic Luca de Meo, suffers from an implacable comparison with Stellantis.
” Debt and cash generation are no longer issues at Renault. Especially since the group is benefiting from an interesting product effect with the Arkana and the arrival of Austral, and of course with the Dacia box. But when we compare Renault to Stellantis, there is no comparison », justifies Frédéric Rozier. Renault is doing better, but remains more exposed than its competitor and compatriot Stellantis if a recession were to occur. ” The potential is greater at Renault, but so is the risk “, insists Frédéric Rozier.
A sector plagued by doubts
The main reason for this lack of love for the sector is more due to economic considerations, believes Benjamin Sacchet. ” The market is worried about the consequences of a recession that would occur in 2023, but we believe that the automotive sector is less cyclical than before. The margin level and the balance sheets allow the sector to be better prepared. An analysis shared by Frédéric Rozier: “ the market anticipates a recession, but at three times earnings on average, the sector is sold out. We could go for a valuation that amounts to five or even six times the Ebitda “.
The automotive sector is therefore far from dead. “ The average age of the car fleet continues to increase, recalls Benjamin Sacchet. It has already reached 12 years in the United States, and Europe is approaching this average, whereas it was hovering around 9 years in the 2000s. It is a large reservoir of growth. »