2017 was a very good year for automakers and automotive suppliers in the world with record revenues and profitability. In France, Renault seems to have done better than Peugeot. According to a study published by Euler Hermes in the last month, the operating margin in average manufacturers of automotive has reached 5 % last year.
This year, investor concerns around slowing global sales, as well as fears related to the disturbances coming from the market of high technology is urging investors to be cautious. They analyze in detail the companies of the sector before investing in the shares of the major automobile manufacturers.
At this time, the actions of the european automotive sector, which is quite cheap. The index Euro Stoxx 600 index of european automotive sector (STOXX® Europe 600 Automobiles & Parts) is down more than 23 % since the beginning of the year, which offers many trading opportunities.
Traders wishing to invest in companies in the sector automobile French can do this via Renault and Peugeot, the two car manufacturers French favorites.
But what is the best choice at this time ?
Renault and Peugeot in terms of valuation and stock market performance
According to the data of Bloomberg, the PER (price on earnings) of Peugeot is higher than that of Renault : 7,88 vs. 3,64. As this ratio is equivalent to the number of times the EPS (earnings per share) has been capitalized in the course of the action, it allows, in our case, to compare a company to its peers. According to the data of Bloomberg, the EPS of the Renault is higher than that of Peugeot : 17,33 vs. 2.42.
In relative, the Peugeot is more “expensive” than Renault, because his PER is higher, and its EPS is lower. While Peugeot shows a gain of over 12 % since the beginning of the year, the stock market performance of the Renault is close to that of the european index since it reached -24 %.
Should we be worried about a decrease in dividends?
While the last dividend declared was of 0,53 EUR for Peugeot, one of Renault has reached 3,55 EUR.
When we observe such a return in Renault, and we know that this level of dividend has not been achieved since 2007, it is necessary to try to determine the chances that the company may reduce (or non -) payments of dividends in the future.
Auto sales are cyclical, increasing and decreasing with consumer confidence and the level of their expenditure. If one takes into account that the vehicle manufacturers have fixed costs are quite high, so we have to think that their profits are also cyclical. Thus, they can fall and turn into losses for the purposes of economic cycles and recessions.
Given the state of the current economic expansion and the many geopolitical risks, it may be that the economy falls into a recession over the next two years, which impacterait the distribution of dividends.
The way Renault uses its liquidity pool might give you indications on a potential reduction in the dividend, because the line of credit available if its reserves are exhausted are not used generally not to pay dividends.
So in the case of economic slowdown, if you observe a considerable decline in cash reserves before sales of the company are recovering, you may think that a potential reduction of the dividends is possible.
Renault or Peugeot?
This week, the PSA group has published its figures for the 3rd quarter of 2018 : the sales increase of 7.8 %, better than expected by analysts : eur 15.4 billion vs. 15,27 billion. The performance of the company are supported by the recent arrival of Opel, and Peugeot expects the performance of the 2nd half of 2018 are similar to that of the 1st half.
For its part, Renault has posted a fall in sales of 6 % in the 3rd quarter to 11,48 billion euros (against a forecast of 12,17 billion euros). Despite this decline, the company confirmed its financial targets for the current year. The company mentions that this drop in activity is mainly due to the negative effects of exchange rates on major markets, in particular the argentine peso, the brazilian real, the Turkish lira and the Russian ruble. In the end, the turnover will decrease by only 1.4 % at constant currency and perimeter constant.
When an investor or a trader choose a business in which to invest, it does so having in mind the future growth of earnings and the potential for the company to win new market shares (or its ability to retain its share of the existing market).
Renault is more turned towards international markets such as Argentina, Brazil, Russia or Turkey, then that Peugeot is a company which exports mainly in Europe. Thus, the slowdown in sales world-affecting more Renault than Peugeot, but Renault has a greater international influence, which could provide more opportunities of development.