VWAPY - Stellantis Is Set To Outperform

2023-04-07 01:48:25 ET

Summary

• Stellantis raised the bar on shareholder remuneration while investing for growth.
• Maserati is a gem that should increase margins before a potential spin-off.
• 7.5% dividend yield, an ongoing buyback, and a low P/E make Stellantis a clear buy.

Since our initiation of coverage, we recorded a remarkable performance on Stellantis N.V. ( STLA ). In 2022, we also commented on the Dare Forward 2030 strategic plan, and with the latest company's development, we believe that Stellantis will outperform Wall Street analyst expectations.

Here are the company's latest key takeaways:

1. FCA Bank is now in Crédit Agricole's hands. The new entity follows the agreements between the French group and Stellantis announced in 2021 as part of the reorganization of the financial partnerships of the two companies. In the meantime, Stellantis announced a new structure for leasing and financing in Europe. This new entity will consolidate Free2move and Leasys activities. Combining these entities, they will reach a fleet of around 828,000 units. Leasys, which is still a JV with Crédit Agricole has the aim to become the EU leasing leader with the ambitious target to reach a vehicles fleet of more than 1 million by 2026. This JV will accelerate its growth plan thanks to the ALD binding agreement for the LeasePlan's activities in Portugal and Luxembourg. With this recent transaction, the JV will increase its fleet by 30,000 additional units.
2. 2023 will be a challenging year for Stellantis, while order intake continues to be very strong and the logistical issues are currently easing, auto demand may be weaker in the coming months due to rising interest rates and higher costs resulting from the electrification process, which will increase competitive pressure. However, here at the Lab, we believe that Stellantis can face these challenges from a position of strength. Starting from an operating margin of 13% achieved in 2022, the objective of defending a double-digit margin seems realistically achievable and the increase in shareholder remuneration is a clear signal of management's confidence in Stellantis' future performance;
3. The other major company's strength is its positive net financial position of €25.7 billion, which allows Stellantis to balance shareholder remuneration and CAPEX investments. The management proposed the distribution of a €4.2 billion coupon, equal to a dividend of €1.34 per share. The coupon will be detached on Monday 24 April 2023 and will be paid on 4 May. In addition, the Stellantis board approved a buyback program for a maximum value of €1.5 billion to be completed by 2023 end;
4. Related to point 3), it is important to recall the latest Stellantis' first 7-year green bond . In early March, the automotive group placed a new bond, maturing on 14 March 2030, worth €1.25 billion against final orders of €4 billion. The yield was lowered to 115 basis points on the mid-swap rate, from initial indications of plus 150 basis points. This demonstrated once again the group's financial solidity and capital flexibility;
5. " Maserati is back " was one of the CEO's first sentences in the analyst call. Maserati wants to increase its core EBIT margin to 15% within the next 12 months and to 20% by the decade's end. In 2022, Maserati recorded an adjusted EBIT of €201 million, after returning to profit in 2021. According to the CEO, Maserati's quality will drive the brand pricing power and will help the luxury car to increase its profitability. Higher margins and more unit sales are the necessary conditions to consider a spin-off and further unlock shareholders' value;
6. It is key to emphasize that Stellantis delivered an FCF of €10.8 billion in 2022, signing a plus 78% compared to 2021 accounts. And, the company is on its way to reaching its plan objective by 2030. The group's latest accounts still increase confidence in the outlook and 2023 visibility coupled with the dividend yield make us more confident. On the valuation front, the stock is currently trading at around 3.5x 2023 EPS, while Volkswagen (VLKAF) (VWAPY) is at around 4.5x (buy-rated by our team), Ford (F), and GM ( GM ) are at around 7.2x. Therefore, here at the Lab, we reiterated our buy rating target at a price of €20 per share ($22 in ADR). With a 7.5% dividend yield, it sweetens the waiting.

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