2 Up, 2 Down: Rating changes with this note
– Renault (+ from =): Our bullish European demand view prompts an upgrade to
Renault, joining PSA as one of our top OEM picks. To date we have played the EU
recovery primarily via PSA, but in hindsight we should have owned both. We correct
this mistake with this note, and believe it’s not too late to buy either French OEM as
demand and productivity recovers back to peak levels.
– FCA (= from +): We still like the optionality within the FCA story, and still see the
stock as a ‘trading buy’ ahead of the Q4 Ferrari IPO. However with Brazil an increasing
concern and NAFTA market profitability at peak, we would be reducing Americas
(North & South) auto exposure at this juncture. Together with some product delays, this
prompts a 15% cut to ‘16e EBIT and a downgrade to Neutral. We also note that any
fallout from current Greek instability may be most keenly felt in Italian stocks.
– Continental (= from -): Our Underperform rating on Conti was driven by the
conviction that consensus earnings expectations were just too high. We believe that
expectations are now much more realistic and we see some 2-3% upside to 2015-16
EBIT. We move to Neutral as we no longer see a catalyst for underperformance.
– Autoliv (- from +): We continue to believe that Autoliv’s leverage to the Active
Safety business is underestimated by the market. While this should eventually translate
into a re-rating for the stock, the near term might be overshadowed by earnings
pressure. Stronger growth in Europe will in our view only partly offset lower than
expected growth in China. We thus move to Underperform and reduce our TP to
USD119 from USD131.
– Peugeot (+; TP to EUR23.0): We keep PSA as our top pick, but increase our TP by
10% to EUR23 to reflect our increased European margin expectations. Our 15-16e
EPS estimates rise c.5%, leaving us c.30% ahead of consensus.