* Moving on to BofAML Europe 1 list. Further upside
At the beginning of 2015 we upgraded Peugeot to Buy and despite strong performance
YTD we still see attractive upside potential for the stock driven by numerous catalysts.
Peugeot is still in the early stages of its restructuring under CEO Carlos Tavares and we
expect the cultural shift taking place in the company to yield further sufficiently positive
pricing and cost benefits in H2 2014 / 2015. Today the stock is being added to the
BofAML Europe 1 list. FY14 results, March strategy CMD and May China CMD should
provide encouraging evidence of Peugeot’s strategic progress.
* Price over volume, cost cutting to bear fruit
Peugeot's strategy to shrink the product portfolio from 45 to 38 by 2016 should drive
further meaningful product mix benefits in H2 2014 and into 2015. Investor concerns
have continued to focus on the relatively weak volume data but to an extent it
should be seen in the light of Peugeot's price over volume strategy. Carlos Tavares
was successful in this regard at Renault and the cultural shift at Peugeot is still in
the early stages. We expect further progress on price and product mix in 2015.
* H2 results to be solid. Nudging up ests to reflect Faurecia
FY14 results this week should deliver strong FCF. We look for confirmation that
price and mix is progressing in the right direction. We do not see Peugeot as a
volume dependent story. However with 60% of sales in EU Peugeot is well geared
to benefit from any EU macro / car market recovery. Following Faurecia’s H2 beat
(3% at EBIT and 3% for net debt) we have upgraded our 2015 Peugeot estimates
by 2% at EBIT and net income to reflect the adjustments to our Faurecia forecasts.
* SOTP based PO of €15.60. Reiterate Buy
Peugeot trades at 10.3% 2015e EV/Sales, below the post crisis ('10-'12) av of 9.1%.
We increase our SOTP based PO from €14.6 to €15.6 as we; 1) move to 13%
EV/sales from 12% on core Peugeot Auto, and 2) raise our Faurecia fair val. to €42,
from €37. Our PO implies 16.4% 2015e EV/Sales and 11.7x / 9.5x 2015e / 2016e P/E.