INTERNATIONAL - For investors in auto companies, one of the worst-performing stock segments in Europe this year, there’ve been only two places to hide from U.S. President Donald Trump’s trade war: Italian racing-car producer Ferrari NV and Peugeot and Citroen manufacturer PSA Group.
The French carmaker, which has no exposure to the U.S. market, is ending the year as the lead gainer on the Stoxx 600 Automobiles & Parts index and is currently up 6.8 percent. Ferrari shares traded in Milan show a 2.1 percent increase. That contrasts with a 26 percent plunge in the index as companies have been hurt by trade tensions, production snags from a new emissions-testing system and the first full-year industrywide sales decline in two decades in China, the world’s largest auto market.
PSA stuck to its mid-term forecasts in October, proving more resilient than rivals, after posting “impressive” first-half results in July. The company, based in the Paris suburb of Rueil-Malmaison, bought German carmaker Opel and British sister brand Vauxhall from General Motors Co. in 2017. An aggressive overhaul involving cost reductions and job cuts pushed those nameplates to a surprise profit after almost two decades of losses.
“It’s a great turnaround story,” said Juergen Pieper, an analyst at Bankhaus Metzler. “I still expect Peugeot to be on the winner side next year as they’re doing a great job in improving efficiency and Opel from a very weak situation in the previous years.”
Ferrari’s stock, while down by one-third from a mid-2018 high following the unexpected death of Chief Executive Officer Sergio Marchionne, continues to outperform on a full-year basis after gaining 65 percent in 2017.
New Ferrari CEO Louis Camilleri has tempered some of his predecessor’s most ambitious goals by softening a key profit target and delaying a long-awaited hybrid sport-utility vehicle by a couple of years. At the same time, he’s raised the dividend-payout ratio, announced a 1.5 billion-euro ($1.7 billion) share buyback and pledged to achieve profit margins comparable to high-end clothiers and watchmakers.
Analyst Alberto Checchinato at Fidentiis Equities appreciates the Maranello-based carmaker’s “hyper-luxury soul” that “remains unmatched even for the best luxury names like Hermes,” he said. “The intrinsic earnings visibility, especially in a time of trade wars, should make Ferrari a valuable asset with low market correlation for investors.”
Ferrari is projected to maintain earnings growth potential through higher car shipments, an increase in average unit prices and higher margins, according to Pierre Lamelin, portfolio manager at the Comgest Growth Europe Opportunities fund. Those conditions should allow the manufacturer to consolidate its “strong brand DNA built on Italian design, engineering heritage and performance, a loyal customer base, limited volumes, pricing power or waiting lists for some models.”
PSA doesn’t sell cars in the U.S., where Trump has targeted critical comments against German manufacturers that include Mercedes-Benz, which is owned by Daimler AG, and BMW. He’s also set policies that damped their exports of vehicles from American plants to China. Ferrari, which also doesn’t have any plants in the U.S., targets customers there who don’t react much to higher prices stemming from rising tariffs.
Not all analysts see PSA’s stock outperformance enduring.
“I’m a little concerned about their offering as they have three mass brands” comprised of Peugeot, Citroen and Opel, and difficult prospects for boosting profitability without a premium model line-up, said Frank Schwope, an analyst at NordLB with a hold recommendation on PSA. “At the moment, it’s OK but I don’t think they can increase car prices and thus margins,” which “could suffer due to its products once the positive effects of the restructuring are over.”