European Autos & Parts

Transcription

1 European Autos & Parts A view from the street Arndt Ellinghorst Global Head of arndt.ellinghorst@credit-suisse.com For published research reports, including disclosures and other information relating to such reports, please visit the website at

2 Where do YOU put your kids money? Buy some bonds or car suppliers... Conti E.ON Germany 5,625% 2016 bond Siemens Savings account floating Deutsche Bank Daimler PSA 0% 2% 4% 6% 8% 10% 12% Compund Annual Growth (%) Produced by: Date: 22/06/2010 Slide 2

3 The longer term story remains a sad one Auto stocks destroy value x 6.5x Investors take a clear view: The Auto industry in operating with diminishing returns, which is reflected in a constant de-rating of EU automotive stocks 6.0x 5.5x 5.0x 4.5x Low profitability (margins) in conjunction with a high capital intensity (low asset turnover) lead to falling capital returns (RoCE). 4.0x 3.5x 3.0x Over the cycle, the industry is not earning its cost of capital and thus destroying value. 2.5x 2.0x E 2010E 2011E EV/EBITDA (RHS) EU Auto industry does not earn its cost of capital The lack of consolidation is driving negative net pricing (too many irrational players) and thus hindering even the good players generating sufficient returns. Tightening fuel efficiency regulations, an ageing population in Western markets and limited incremental support from Financial Services add to the pressure. Produced by: Date: 22/06/2010 Slide 3

4 Asian OEMs are rewarded for their higher returns and growth 5 HOLT Economic P/E FAW 4 Value-to-Cost Ratio (HOLT price-to-book) Renault 3 2 Mitsubishi Isuzu 1 Ford Honda Daimler Nissan Toyota Fiat Porsche BMW Suzuki Mazda Fuji Daihatsu VW Peugeot Hyundai Chongqing Astra SAIC Maruti Geely Jiangling Mahindra Kia Dongfeng Denway Beiqi Europe Japan Non-Japan Asia US Exponential (Global) Linear (Europe) Forecast CFROI % Produced by: Date: 22/06/2010 Slide 4

5 Car demand: Permanently damaged? Western European car sales no major correction yet 18,000 16, 's recession / German reunification: Peak to trough drop = -17% 14,000 12,000 No return to previous peaks until 2015E 10,000 8,000 6,000 4,000 2, 's Oil Shock I: Peak to trough drop = -12% 's Oil Shock I: Peak to trough drop = -6% E E credit crisis: CS estimated peak to trough drop = -16% over 3 years TODAY 2012E 2014E 2016E 2018E Produced by: Date: 22/06/2010 Slide 5

6 US Consumer Confidence improving...? US light vehicle sales it took long, but now at the bottom US Sales (12MM SUM) US Consumer Confidence Replacement demand = c.12-13m units Produced by: Date: 22/06/2010 Slide 6

7 Channel Mix: 2009 by market Biggest market distortion ever private vs fleet sales EU -29% -2% 18% UK -17% -8% 5% Italy TOTAL -24% Corporate / Fleet -2% 8% Fr ance Priva te -1% 6% 14 % Spain -33% -20% -8% Germany -23% 26% 90% Other EU -43% -25% -10% -6 0% -4 0 % -20 % 0% 2 0% 40% 60 % 8 0% 100 % Produced by: Date: 22/06/2010 Slide 7

8 EU CO2: Still a major issue! Major progress has been made, but more is still needed (95g/km by 2020) 180 CO2, 2009 DAI g/km BMW Nissan 160 VW Ford GM Hyundai 150 Target Curve 130g Fiat Toyota Renault Average 140 PSA g/km industry average Target Curve 95g 90 95g/km industry average 80 Vehicle mass, Kg Source: Company reports and Credit Suisse estimates reported emission data Produced by: Date: 22/06/2010 Slide 8

9 US Emission Standards: Where we stand Passenger Car proposals German makers need to ship EU engines (more expensive) Fleet average mpg Honda Hyundai Nissan Toyota Kia Porsche VW BMW GM Chrysler Ford Daimler Fleet average footprint (sq feet) Produced by: Date: 22/06/2010 Slide 9

10 Demographics Baby Boomers to Empty Nesters Populations are getting older W.Europe age transition 60% 50% 40% 30% 20% Age of car customers 2006 vs 2020 (Germany) 30.0% 25.0% 20.0% 15.0% 10.0% 10% 5.0% 0% E 2050E 0.0% below and abov e 16,000 14,000 12,000 Over Average mileage/year by age (US) % older than 60: By as soon as 2020, customers older than 60 are likely to represent 40% of car buyers in developed markets (from currently below 30%). 10,000 8,000 6,000 4,000 2, All 20-30% falling replacement demand: People above 65 drive ca. 45% fewer miles/year compared to the average car owner, a higher penetration of this customer group will inevitably reduce replacement demand. Together with a generally increasing durability of cars, this could lead to structurally falling sales in developed markets by the magnitude of 20-30% Produced by: Date: 22/06/2010 Slide 10

11 Car buyers are sensitive to finance costs The era of cheap credit cant last forever Carmakers are selling up to 80% (premium makers) via leasing/financing 300bps increase of finance rates increase TCO by 10% Higher TCO should lead to fewer car sales Economies of scale will thus decrease and consolidation should instead trigger efficiency gains Financial Services penetration rates (leasing and financing) TCO sensitivity to finance rate 90% Finance cost sensitivity: 80% 70% 60% 50% 40% 30% 20% 10% Finance cost over 3 years, 'Premium' 100bp = 1,050; 3% of TCO 'Mid' 100bp = 630; 3% of TCO 'Mass' 100bp = 315; 2.5% of TCO 0% Mercedes BMW Porsche VW PSA Renault Fiat 0 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% Captive Non-captive Finance rate Source: Credit Suisse Estimates, *selling price assumptions: mass= 15k, mid= 30k, premium= 50k Produced by: Date: 22/06/2010 Slide 11

12 P.O.M. premium over mass Major outperformance of premium automotive stocks Premium / Mass 'Premium' = Daimler + BMW 'Mass' = PSA + RNO + Fiat Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Produced by: Date: 22/06/2010 Slide 12

13 Sector: Marketweight Long anything but mass EU Autos BMW: O/P (FOCUS LIST), 52 TP: Product drives pricing Daimler: O/P, 50 TP: Least expensive trucks exposure Conti: O/P 52 TP: Window of opportunity Fiat: O/P, 14 TP: Spinoff/Removal of the conglomerate discount MAN: O/P, 78 TP: Cheapest pure play Renault: O/P, 43 TP: Nissan Play Porsche: O/P, 69 TP: A way into VW fundamentals? VW Pref: O/P, 83 TP: Valuation outweighs corporate governance concerns 1) Avoiding EU private demand ahead of scrappage expiry 2) Fleet demand to recover versus declining sales to privates 3) Long non-eu-autos exposure (CNH, trucks, intl exposure) Short mass EU and expensive truck exposure PSA Peugeot Citroen: U/P, 21 TP: highest exposure to EU private demand Michelin: U/P, 46 TP : Great expectations at a high price Autoliv: U/P, $51 TP : Overlooked play on overhang? Scania: U/P, SEK96 TP : Expensive, illiquid, at risk Volvo: U/P, SEK78 TP : Expensive, NA truck exposure better played via Daimler Special situations Porsche/VW: Buy Porsche as a way into merger Volkswagen: Beware of the overhang in the prefs (QIA 25%) MAN/Scania/VW: Who will take the lead? Stock-selection to prevail over macro themes in 2010E 4) Fiat is a play on CNH/Brazil. Daimler is the best premium/trucks pure play 5) VW pref is the cheapest global mass producer 6) RNO is a cheap way to buy undervalued Nissan Produced by: Date: 22/06/2010 Slide 13

14 Thank you Produced by: Date: 22/06/2010 Slide 14