* Anything at all in the glass?
In our view, Peugeot shares no longer simply reflect the expectation that the company won’t fail in the coming months, they also price in a scenario whereby it would be salvaged in its current form, as in the late 1980s. This is more than we can see, in a different world today. We understand the risk of a further squeeze on Wednesday but stick with our fundamental call: Reduce.* The market has seen a glass half full since last June
We underestimated investor appetite for a potential recovery, a new management team, restructuring, exposure to Southern Europe and corporate action, which all led to a solid share price performance in the last 12 months. Peugeot shares are back to EUR12+.The market has been seeing a glass half full for Peugeot. Is there still something in the glass? We don’t expect the company to fail imminently, but is it going to thrive?
* Revolution tomorrow? Large dilution again, and leap of faith
An announcement of a large rights issue (EUR3bn-4bn counting possible warrants) along with a new ‘governance’ driven by the French State, Dongfeng and the Peugeot family, a new CEO (before a new head of supervisory board likely to be announced late March), a possible JV with Santander for BPSA (50%+) and a potential sale of all or part of Faurecia are now all expected. Short-interest is at record highs which may be the last trigger for the shares, should the announcement surprise positively.
* Our 2013 forecasts are surprisingly higher than consensus
We forecast Peugeot to publish a modest EUR49m positive group EBIT for 2013 (-EUR65m in H1) on Wednesday morning, surprisingly more than the company’s consensus figure (–EUR200m), implying sequentially higher losses in the Autos business in H2 2013 (-EUR510m in H1). We anticipate FCF to be at –EUR1.2bn versus consensus at –EUR1.4bn taking net debt to EUR4.1bn (consensus EUR4.4bn). Faurecia’s better net debt figure implies a EUR200m positive uplift to our and consensus estimates.
* We still see the glass as half empty (or less)
In our view, Peugeot remains a sub-scale OEM, rapidly losing share in Europe, with the wrong cost base (too many plants and employees in the wrong place), weak brands and overly ambitious aspirations. An alliance with DongFeng would not solve the scale and cost issues in Europe, LatAm or Russia (where Peugeot has never made money), in our view. Our top picks in European Autos remain Renault, VW, Daimler, Michelin and Plastic Omnium, profitable groups with exposure to Europe, but also strong balance sheets, proven track records on FCF and rising cash returns.
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