In 2016, the market recovered following a gradual slowdown in the growth of car sales since 2010, when it peaked at +10%. Last year, sales grew by 5% and over 84 million vehicles were sold. There has been marked improvement in the Asia-Pacific area with 42 million units sold and growth of around 9%, as well as in Europe with 17.3 vehicles sold and an increase of 4.8% over 2015. Growth in the US has been slower, with 21 million cars sold and growth of 1.7%.
French-German uncertainties
Although the European market is experiencing a growth trend, last February there was a slight slowdown: in the 28 EU member states and the other EFTA nations (Iceland, Norway and Switzerland), 1,114,443 cars were sold, 2.1% more than in February 2016 (data from ACEA, the European Automobile Manufacturers’ Association). At first glance, this figure seems positive, but if we compare it to the growth rate in January, when the market grew by 10.1%, it reveals a downturn in the industry. France and Germany were hardest hit by the slowdown, with respective figures of -2.9% and -2.6%, partly due to uncertainties related to the international macroeconomic situation and European politics.
Positive signs & next steps
Overall, in the first two months of 2017, 2,317,717 cars were sold, with an increase of 6.1% over the same period in 2016. From this data, it is evident that the industry is experiencing a maturity stage, which could be greatly accelerated in the coming decade by the introduction of mass-marketed electric cars.
Generally, major factors that could significantly affect the stock performance of the automotive industry are unprecedented potential industry mergers, such as the rumoured merger of FCA: the Italian corporation recently found itself in the spotlight following speculations about a merger with General Motors and then with Volkswagen. Acquisitions that have already been made official will also have a major impact, such as the agreement signed by French group PSA (Peugeot, Citroën, DS) with General Motors for the acquisition of the Opel/Vauxhall brand for 1.3 billion euro (in addition to the 900 million that it will have to pay GM for its European financial assets), which has made it the second largest European car manufacturer. Legislative changes and potential new C02 emission scandals may also play their part.
Financial Analysis
We have analysed the industry from the point of view of certain basic financial parameters such as debt level, ability to service debt through the generation of cash flow (free cash flow, namely the difference between a company’s cash inflow and outflow over a given period of analysis), dividend offered (i.e. the profits that a company decides to distribute to its shareholders) and price-earnings ratio (the ratio between the current price of a share when the index is calculated and the expected return for each share indicates how many times the price of a stock covers the profits that are or will be generated by a company).
The most interesting companies are French Renault, German Daimler and American corporations General Motors and Ford, though these last two have recorded a lower growth rate. Renault has a dividend of around 3.76% with a P/E ratio of 5.62x, below the industry average of 7.53x, free cash flow in 2016 of 2.4 billion euro and negative net debt. Daimler pays a dividend of 4.79% with negative net debt, a P/E ratio of 9.3x and negative cash flow of -1.5 billion euro, but a positive expectation of 4 billion euro for 2017.
Looking at Italy, we note that FCA remains the corporation with the lowest P/E ratio of 5.01x, discounting the absence of a dividend despite the important work in the last 24 months aimed at reducing debt and accelerating the generation of cash flow, partly thanks to the likely sale of Magneti Marelli to South Korean giant Samsung Electronics.
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Elaborazione Ufficio Studi Tendercapital su dati Bloomberg