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Revised Automotive Economy
Credit Signals, Volume Risk, Keep Us Focused on German Names
What’s New? — We revise estimates for our coverage in the light of rapidly changing
perceptions of where global economic growth is headed. Our Global Auto volume
outlook switches from +5% and +7% for 11E/12E to +3.7% and +3.2%, and EPS
growth for 12E, ex-items, falls back to +3% from +13%. Markets seem to have already
priced in worse (perhaps ~10% fall, in our view). We remain alive to the risks that a
more general recessionary environment might pose to this early cycle sector, which
has underperformed by 15% in the last month, but still has its 40% 2010 gain intact.
Credit markets provide some worrying signals — European Autos are heavily debt
intensive, with OEM debt outstanding of c.€285bn and memories of the €20bn sector
cash burn of H208 and credit market seizure still fresh in investors’ minds. So we
explore the current state of balance sheets and liquidity access. Though balance
sheets are €12bn stronger for OEMs than at end-H108, gross sector debt is also
higher, and refinancing needs just as complex with credit markets not yet fully tested in
August. PSA, RNO and Fiat CDS also signal refinancing challenges, even if German
OEM CDS remain solid. Assessing how these challenges can be met and what signals
to look for from credit markets is crucial for Auto equity investing, in our view.
Investment Edge — Changes to our ratings, target prices and estimates are
summarised below. Sensitivity to volume declines, real or feared, pricing risk and credit
signals mean we downgrade Peugeot to Hold, and resume coverage (after a period of
restriction) on Fiat and Volkswagen with Holds. We upgrade Volvo to Hold and
downgrade Scania to Sell on valuation grounds. We move Faurecia to High risk on low
margin history.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Revised Automotive Economy
Credit Signals, Volume Risk, Keep Us Focused on German Names
What’s New? — We revise estimates for our coverage in the light of rapidly changing
perceptions of where global economic growth is headed. Our Global Auto volume
outlook switches from +5% and +7% for 11E/12E to +3.7% and +3.2%, and EPS
growth for 12E, ex-items, falls back to +3% from +13%. Markets seem to have already
priced in worse (perhaps ~10% fall, in our view). We remain alive to the risks that a
more general recessionary environment might pose to this early cycle sector, which
has underperformed by 15% in the last month, but still has its 40% 2010 gain intact.
Credit markets provide some worrying signals — European Autos are heavily debt
intensive, with OEM debt outstanding of c.€285bn and memories of the €20bn sector
cash burn of H208 and credit market seizure still fresh in investors’ minds. So we
explore the current state of balance sheets and liquidity access. Though balance
sheets are €12bn stronger for OEMs than at end-H108, gross sector debt is also
higher, and refinancing needs just as complex with credit markets not yet fully tested in
August. PSA, RNO and Fiat CDS also signal refinancing challenges, even if German
OEM CDS remain solid. Assessing how these challenges can be met and what signals
to look for from credit markets is crucial for Auto equity investing, in our view.
Investment Edge — Changes to our ratings, target prices and estimates are
summarised below. Sensitivity to volume declines, real or feared, pricing risk and credit
signals mean we downgrade Peugeot to Hold, and resume coverage (after a period of
restriction) on Fiat and Volkswagen with Holds. We upgrade Volvo to Hold and
downgrade Scania to Sell on valuation grounds. We move Faurecia to High risk on low
margin history.
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