December 16, 2015
Europe: Automobiles
Our sector in six charts Exhibit 1: EU Autos has outperformed the market over the past year… 12-month performance
n o i s i v e r S P E . d w f m 2 1 -50%
Fin Svs PHHG Travel & Leis Const & Mat Food Tech Real Estate Retail Ins Media HC Ind Gds & Svs Telcos Chemicals Autos Stoxx Oil Banks Utilities Basic Res -30%
-20%
-10%
Exhibit 2: …on relative earnings upgrades Performance vs. EPS revision
140%
40% Travel & Leis Fin Svs Food Tech Media Real Estate Autos HC Stoxx Chemicals TelcosPHHG Ins Retail Retail 0% Banks 0%Ind Gds & Svs25%Const & Mat 50% Utilities 20%
-25%
Exhibit 3: Valuation remains attractive Autos P/E relative to market
120% 100% 80% 60% 40%
-20% 20%
Oil
0%
-40% Basic Res
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
-60%
0%
10%
20%
12-month performance
30%
Source: Datastream.
Exhibit 4: Overarching growth trend slowing Global auto sales (units = mn, growth = % yoy) 100
15%
80
10%
Source: Datastream.
Exhibit 5: Market already paying for 2016E returns Sector ROIC vs. share-price implied implied ROIC
Exhibit 6: FCA, Continental are our top picks Upside/downside to 12-month price target 50%
12%
40%
8%
5%
Median
Source: Datastream.
10%
60
Autos P/E P/E rel to market P/E
30%
6% 20% 4%
40
0%
10%
2%
20
0 1 0 2
1 1 0 2
2 1 0 2
3 1 0 2
Tria Triad d (US, (US, EU, JP)
4 1 0 2
E 5 1 0 2
E 6 1 0 2
RoW
E 7 1 0 2
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
-5%
Glob Globa al gro growth (RH (RHS)
Source: IHS Global Insight, Company data, Goldman Sachs Global Investment Research.
0%
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 E E E E E E 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 2 2 2 2 2 2 Se ct ctor RO IC IC
I mp mpl ie ied ROI C
Source: Company data, Goldman Sachs Global Investment Research.
0%
-10%
a A i c C e F r u a F
l A a t n S e P n i t n o C
r N ) n t l o a e o l v e l a u l l K S i e l a o a H m G U ( k i o n V a d N e V D n R I H N C
v W e n i i l l W h e o M V c h t s u B r c A i o M P
Source: Company data, Goldman Sachs Global Investment Research.
December 16, 2015
Europe: Automobiles
Table of contents Our sector in six charts
2
European autos in 2016: The state of play
5
Our key action ideas
9
Looking back to see forward: European Autos modestly outperformed in 2015
12
Global growth accelerating, but Triad growth looks all but over
13
Returns drive valuation: Our ROIC valuation framework explained
14
BMW (BMWG.DE): Growth slowing, ROIC stalling; reiterate Sell
21
Daimler (DAIGn.DE): Consistent execution flowing into free cash; reiterate Buy
25
Fiat Chrysler (FCHA.MI): Delivering on growth; plus substantial optionality; CL-Buy
29
Peugeot (PEUP.PA): Steady operational progress with strategic optionality; Buy
33
Volkswagen (VOWG_p.DE): Many questions unanswered on the road to redemption; Sell
37
Porsche (PSHG_p.DE): Reflecting our negative VW view; Sell
41
Continental (CONG.DE): Improving growth outlook to drive re-rating; reiterate CL-Buy
43
Faurecia (EPED.PA): Confident on 2016 targets; see scope for re-rating: Reiterate Buy
47
GKN (GKN.L): Expect growth to resume in 2016; see upside post derating; reinstate at Buy
51
Hella (HLE.DE): Strong organic growth amid pause in margin expansion; up to Buy
55
Valeo (VLOF.PA): Best-in-class growth set to continue; reiterate Buy
59
Estimate changes and key risks to our price targets
66
Valuation multiples
69
GS versus consensus
70
Dividend and FCF yield
71
Disclosure Appendix
72 The prices in the body of this report are based on the market close of December 11, 2015, unless otherwise stated.
December 16, 2015
Europe: Automobiles
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December 16, 2015
Europe: Automobiles
Scale to prevail, consolidation appears necessary All of this, in our view, supports a case for scale and, in turn, a case for consolidation. FCA CEO Sergio Marchionne has emerged as an advocate for consolidation in an investment-hungry sector already struggling to earn its cost of capital. Whether FCA, GM, PSA or another player moves first, we see an industrial logic to consolidation with the process waiting to be set in motion. On the overall space, we remain neither very bullish nor bearish and we retain our Neutral coverage view. We do, however, see select opportunities, and we lay out our key action ideas below.
Balanced risks and opportunities Looking into 2016, we see a balance between investment risks and opportunities relative to our base scenario. Triad volume growth could surprise on the upside, most likely as result of a more resilient European volume growth outcome and sooner-than-anticipated recovery in Brazil and Russia. A more accelerated US dollar strengthening vis-a-vis the euro could also add further uplift to sector earnings and ret urns. The risks are centred around a weaker-than-expected North American profit pool development in 2016, accelerated normalisation of China profitability, particularly for export vehicles, as well as further emerging market devaluation, with a particular risk from a devaluation of the RMB.
December 16, 2015
Europe: Automobiles
Looking back to see forward: European Autos modestly outperformed in 2015 Year to date, the European Autos sector (SXAP) has risen 9%, mildly outperforming the European market (Stoxx +4%). However, the journey this year has been a volatile one, which we view through the lens of three distinct periods.
Euro-fueled optimism (+39%, three months; Jan-Mar): The SXAP sprinted out of the blocks in 2015, up +39% from Jan 2 to the peak on March 16, driven by the combined impact of strong European car sales, a weakening euro (particularly vs. the US dollar), and equity markets buoyed by ECB asset purchases. The decline: China and EM concerns (-35%, six months; Apr-Sep): From peak (March 16) to trough (Sep 29), the sector lost over a third of its value (-35%): The decline was marked initially by slowing China car sales (May), RMB devaluation rolling into emerging market growth concerns (August), with the SXAP’s downward journey finally culminating in VW’s emiss ions scandal (Sep-Oct). VW constituted ~13% of the SXAP pre the scandal, but is ~8% now. Mean reversion (+21%, two months; Oct-ytd): Since the trough on S ep 29, the SXAP has rebounded 21%, helped by V W up 35% on lower than initiall y expected recall and repair costs. Further support has come from a rebound in China c ar sales helped by government incentives and a generally positive 3Q results season.
Exhibit 8: EU Autos has outperformed the market by ~5% year-to-date SXAP performance – absolute and relative to market (indexed)
Exhibit 9: Nokian, PSA have been the best performers year-to-date ytd performance
150 Euro-fuelled optimism
140
The decline: China and EM concerns
Nokian PSA Renault Pirelli FCA Valeo Continental Autoliv Autoliv Michelin SXAP Faurecia Daimler BMW BMW Stoxx Hella CNH Industrial Volvo GKN Porsche Volkswagen
Mean reversion
130 120 110 100 90 80
5 1 n a J
5 1 b e F
5 1 r a M
5 1 r p A
5 1 y a M
5 1 n u J
SXAP SXAP abso absolu lute te perf. perf.
Source: Datastream.
5 1 l u J
5 1 g u A
5 1 p e S
5 1 t c O
SXAP SXAP rel. rel. to STOX STOXX X
5 1 v o N
5 1 c e D
-40%
-20%
Source: Datastream.
0%
20%
40%
60%
80%
December 16, 2015
Europe: Automobiles
Returns drive valuation: Our ROIC valuation framework explained We believe that return on capital is the primary driver of valuation in autos. Our valuation framework assumes that a company’s enterprise value to invested capital ratio (EV/IC) is proportionate to its return on invested capital to fair market cost of capital ratio (ROIC/FMCC). We observe a good correlation between our forecast 2016/17 economic returns (ROIC/ FMCC at 8%) and current valuations (EV/IC) with an R2 of 72% and 71%, respectively (Exhibits 11 and 12). Exhibit 11: Economic returns drive valuation for the sector, R 2 = 72% on 2016E EV/IC vs. ROIC/FMCC (2016E) ) E 6 4.0 1 0 2 ( C 3.5 I / V E 3.0
Exhibit 12: …and R2 = 71% on 2017E EV/IC vs. ROIC/FMCC (2017E) ) E 7 4.0 1 0 2 ( C 3.5 I / V E 3.0
Nokian
R² = 72%
Nokian
R² = 71%
2.5
2.5
Autoliv Autoliv
Autoliv Autoliv
Valeo Continental
2.0 1.5
0.5
GKN Hella VolvoFaurecia Michelin BMW CNH Ind. Daimler Renault Peugeot VW FCA
1.5
Hella GKN BMW Faurecia CNH Ind.Volvo Volvo Daimler Michelin Renault Peugeot FCA
1.0
Continental Valeo
2.0
1.0 0.5
VW 0.0
0.0 0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
0.0
0.5
1.0
1.5
2.0
2.5
Source: Company data, Goldman Sachs Global Investment Research.
3.0
3.5
4.0
ROIC/FMCC (@8%, 2017E)
ROIC/FMCC (@8%, 2016E) Source: Company data, Goldman Sachs Global Investment Research.
Investors hesitate to pay for OEM returns... Among the OEMs, the value applied by investors to the respective companies (expressed in terms of EV/IC) tends to be lower than the antici pated return on capital (expressed in terms of ROIC/FMCC) on our estimates (or expressed differently, the gradient of the best fit line in Exhibit 13 is 0.51). The explanation is, in our view, that investors doubt the sustainability of OEM returns, chiefly due to 1) cost headwinds from intensifying emissions regulations and 2) the expectation of medium-term profitability normalisation in China. ...But are willing to credit suppliers for future growth: For the suppliers, in contrast, investors apply a higher EV/IC than
December 16, 2015
Europe: Automobiles
Exhibit 13: OEM trade at a discount on 2016E OEM EV/IC vs. ROIC/FMCC (2016E)
Exhibit 14: …as investors currently hesitate to pay for OEM returns OEM ROIC vs. share-price implied ROIC
) E 6 2.5 1 0 2 ( C I / V 2.0 E
16%
12%
1.5
8% BMW
1.0
R² = 69%
Daimler 4%
Renault
FCA VW
0.5
Peugeot 0%
0 0 0 2
1 0 0 2
2 0 0 2
3 0 0 2
4 0 0 2
5 0 0 2
6 0 0 2
7 0 0 2
8 0 0 2
9 0 0 2
0 1 0 2
1 1 0 2
2 1 0 2
3 1 0 2
4 1 0 2
0.0 0.0
0.5
1.0
1.5
2.0 2.5 ROIC/FMCC (@8%, 2016E)
OEM ROIC
E 5 1 0 2
E 6 1 0 2
E 7 1 0 2
E 9 1 0 2
E 0 2 0 2
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
Implied ROIC
Source: Company data, Goldman Sachs Global Investment Research.
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 15: Supplier returns and valuation are correlated, with R 2 = 76% Suppliers EV/IC vs. ROIC/FMCC (2016E)
Exhibit 16: Market already paying for improving supplier returns Supplier ROIC vs. share-price implied ROIC
) E 6 4.0 1 0 2 ( 3.5 C I / V E 3.0
E 8 1 0 2
20% Nokian
R² = 76%
Autoliv Autoliv
2.5
12%
Continental Valeo
2.0
16%
8%
GKN 1.5
Hella
4%
Faurecia
Michelin
1.0
0%
0.5
0 0 0 2
1 0 0 2
2 0 0 2
3 0 0 2
4 0 0 2
5 0 0 2
6 0 0 2
7 0 0 2
8 0 0 2
9 0 0 2
0.0 0.0
0.5
1.0
1.5
2.0
2.5
3.0 3.5 4.0 ROIC/FMCC (@8%, 2016E)
Supplier ROIC
0 1 0 2
1 1 0 2
2 1 0 2
3 1 0 2
4 1 0 2
E 5 1 0 2
Imp Implied ied ROIC
E 6 1 0 2
E 7 1 0 2
December 16, 2015
Europe: Automobiles
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December 16, 2015
Europe: Automobiles
Company Section
December 16, 2015
Europe: Automobiles
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December 16, 2015
Europe: Automobiles
BMW in six charts Exhibit 21: We see BMW as the best-positioned European OEM Autos GS Competitive Positioning framework 100%
Exhibit 22: Consolidated unit sales growth is slowing Unit sales (k), consolidated vs. China at-equity
Exhibit 23: Declining China EBIT Consolidated China EBIT progression
3,000
3,500
2,500
3,000
BMW 75%
Hella
e r o c s h t 50% w o r G
Faurecia
Autoliv
Daimler
Continental
GKN
Michelin FCA Valeo
2,500
2,000 Volkswagen
25%
CNH Industrial
n m 2,000 €
1,500
1,500
Nokian
Volvo
1,000 1,000
500
500
Peugeot 0 Renault 0% 0%
25%
50%
75%
100%
0
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 E E E E E E 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 2 2 2 2 2 2
Consolida Consolidated ted volumes volumes
Structural score
JV China China productio production n
7 8 9 0 1 2 3 4 E E 0 0 0 1 1 1 1 1 5 6 0 0 0 0 0 0 0 0 1 2 2 2 2 2 2 2 2 1 0 0 2 2 Imports Imports EBIT EBIT
E 7 1 0 2
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
Compon Components ents EBIT
Source: Goldman Sachs Global Investment Research.
Source: Company data, Goldman Sachs Global Investment Research.
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 24: Model refresh cycle does not begin until 2017 Volume-weighted portfolio model age
Exhibit 25: Stock has been an underperformer Consensus EBIT (€ mn) and share price (€) performance
Exhibit 26: Declining ROIC dampens re-rating chances BMW ROIC vs. share price-implied price-implied ROIC
11,000
6
110
20%
105
5-Series 5
10,000
100
16%
X3 95
X5
X5
4
X1
9,000
90
1-Series/ 3-Series
Mini
85 8,000
2
75
3 1 0 2
4 1 0 2
E 5 1 0 2 BMW Group
E 6 1 0 2
E 7 1 0 2 BMW brand
E 8 1 0 2
E 9 1 0 2 Mini
Source: Company data, Goldman Sachs Global Investment Research.
8%
80
3 7,000
12%
3 1 c e D
4 1 r p A
2015 GSe 2015 Perf v SXAP
4 1 g u A
4 1 c e D 2016 GSe 2016
5 1 r p A
5 1 g u A
5 1 c e D
2017 GSe 2017
Source: Company data, Goldman Sachs Global Investment Research, Datastream
4%
70 0%
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 E E E E E E 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 2 2 2 2 2 2 ROIC
Implied ROIC
Source: Company data, Goldman Sachs Global Investment Research.
December 16, 2015
Europe: Automobiles
BMW summary financials (contd.) Exhibit 28: BMW financial summary
€m
2015E 2015E
2016E 2016E
2017E 2017E
2018E 2018E
2019E 2019E
2020E 2020E
Revenue by division
Auto Motorcycles Financial Services Reconciliation Group
% growth
Motorcycles Financial Services Reconciliation Group
% growth
85,606 85,606
86,974 86,974
86,551 86,551
86,237 86,237
86,865 86,865
87,393 87,393
1Q
2,521
2,010
2,110
2,220
2,330
2,450
2,570
2Q
2,525
23,688
24,605
24,415
24,450
25,196
25,725
3Q
2,354
-18,780
-19,590
-19,470
-19,330
-19,670
-19,850
4Q
2,112
92,520
94,100
93,720
93,690
94,840
95,840
Total
9,512
15%
2%
0%
0%
1%
1%
7,462 7,462
7,545
8,188 8,188
8,502
8,126
7,801
Motorcycles Financial Services Reconciliation Group
2016E 2016E
2017E 2017E
2018E 2018E
2019E 2019E
2020E 2020E
1Q
12.1%
220
240
260
280
300
320
2Q
10.5%
1,960
2,030
2,020
2,020
2,080
2,120
3Q
10.5%
-130
-150
-160
-160
-160
-150
4Q
9,512
9,665
10,308
10,642
10,346
10,091
4%
2%
7%
3%
-3 -3%
-2 -2%
8.7%
8.7%
9.5%
9.9%
9.4%
8.9%
10.9%
11.4%
11.7%
12.0%
12.2%
12.5%
8.3%
8.3%
8.3%
8.3%
8.3%
8.2%
Quarterly EBIT margin
EBIT margin
Auto
2015E 2015E
Quarterly EBIT
EBIT by division
Auto
€m
Total
8.3% 10.0%
Auto EBIT Walk
0.7%
0. 0.8%
0.8%
0. 0.8%
0. 0.8%
0. 0.8%
10.3%
10.3%
11.0%
11.4%
10.9%
10.5%
Underlyin Underlying g EBIT previous previous year year
7,244
7,462 7,462
7,545
8,188
8,502
8,126
Margin, %
9.6%
8.7%
8.7%
9.5%
9.9%
9.4%
Volume/Mix/Market
362
255
65
44
-29
8
FX & commodities
617
636
1,418
790
20
0 -1 -157
Depreciation
-429
-5 -562
-5 -522
-2 -252
-90
Other changes
-333
-247
-318
-269
-277
-176
7,462
7,545
8,188
8,502
8,126
7,801
8.7%
8. 8 .7%
9. 9 .5%
9.9%
9. 9 .4%
8.9%
Underlying EBIT current year
Margin, % Source: Company data, Goldman Sachs Global Investment R esearch.
December 16, 2015
Europe: Automobiles
Daimler in six charts Exhibit 29: Daimler looks fundamentally well positioned Autos GS Competitive Positioning framework 100%
BMW 75%
Exhibit 30: Unit sales to continue to grind higher Unit sales (k), consolidated vs. China at-equity 2,500
12,000
7%
2,000
10,000
6%
Hella
e r o c s h t 50% w o r G
Faurecia
Volkswagen
Autoliv
Daimler
Continental
GKN
Valeo
CNH Industrial
5%
8,000
1,500
4% 6,000 3%
1,000
Michelin FCA
25%
Exhibit 31: Strong FCF underpinning dividend FCF (€ mn) and dividend yield
4,000
Nokian
Volvo
2% 500
2,000
1%
Peugeot 0 Renault 0% 0%
25%
50%
75%
100%
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 E E E E E E 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 2 2 2 2 2 2
Consolid Consolidated ated volumes volumes
Structural score
Source: Goldman Sachs Global Investment Research.
Exhibit 32: Product momentum continues at Mercedes Volume-weighted portfolio model age
A-Class
5 GLA
GLE Coupe/ GLC
140
E 5 1 0 2 Dai ml mler Group
E 6 1 0 2
16%
100
14%
80
E E 7 8 1 1 0 0 2 2 Mercedes br an and
60
GLB
E 9 1 0 2 Smart
Source: Company data, Goldman Sachs Global Investment
E 6 1 0 2
E 7 1 0 2
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
0% -1%
Div yield
18%
120
12,000
12% 10% 8%
8,000 4 1 0 2
E 5 1 0 2
Exhibit 34: Value opportunity at these ROIC levels Daimler ROIC vs. share price-implied ROIC
40
3
3 1 0 2
4 1 0 2
Exhibit 33: Shares yet to reflect earnings upgrades Consensus EBIT (€ mn) and share price (€) performance
10,000
2
3 1 0 2
Source: Company data, Goldman Sachs Global Investment Research.
B-Class
E-Class
4
2 1 0 2
Source: Company data, Goldman Sachs Global Investment Research.
14,000
C-Class
1 1 0 2
Free cash flow
CLA S-Class
-2,000
JV China China productio production n
16,000
6
0
3 1 c e D
4 1 r p A
2015 GSe 2015 Perf v SXAP
4 1 g u A
4 1 c e D
2016 GSe 2016
5 1 r p A
5 1 g u A
5 1 c e D
4%
0
2%
2017 GSe 2017
Source: Company data, Goldman Sachs Global Investment Research, Datastream
6%
20
0%
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 E E E E E E 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1 0 0 0 0 0 0 2 2 2 2 2 2
ROIC
Implied ROIC
Source: Company data, Goldman Sachs Global Investment Research.
December 16, 2015
Europe: Automobiles
Daimler summary financials (contd.) Exhibit 36: Daimler financial summary
€m
2015E
2016E
2017E 2017E
2018E 2018E
2019E 2019E
2020E
Revenue by division
€m
2015E 2015E
Mercedes
83,418
88,103
86,588
88,401
91,881
93,178
1Q
Trucks
37,224
36,450
37,804
38,018
39,524
41,094
2Q
3,784
Financial Services
19,190
20,030
19,610
20,050
20,950
21,190
3Q
3,657
Van
10,698
11,060
11,420
11,520
11,650
11,760
4Q
Bus
4,176
4,301
4,430
4,563
4,700
4,841
Reconciliation
Total
-7,442
-7,412
-7,539
-7,842
-8,002
152,440
155,013
160,862
164,061
13.6%
3.4%
0.0%
1.7%
3.8%
2.0%
Mercedes
8,400
9,050
9,650
10,100
10,200
9,600
1Q
8.6%
Trucks
2,800
2,767
2,867
3,027
3,167
3,267
2Q
10.1%
Financial Services
EBIT by division
1,650
1,600
1,600
1,600
1,600
1,600
3Q
9.8%
850
900
900
900
900
900
4Q
9.0%
Bus
230
230
250
270
270
270
Total
9.4%
-100
-131
-150
-131
-172
-170
13,829
14,416
15,117
15,766
15,965
15,467
520
700
670
700
770
13,309
13,716
14,447
15, 06 066
15, 19 195
14,697
10.1%
10.3%
11.1%
11.4%
11.1%
10.3%
Trucks
7.5%
7.6%
7.6%
8.0%
8.0%
7.9%
Financial Services
8.6%
8.0%
8.2%
8.0%
7.6%
7.6%
Van
4.4%
4.5%
4.6%
4.5%
4.3%
Bus
2.1%
2.1%
2.2%
2.3%
2.3%
Reconciliation
1.4%
1.8%
2.0%
1.7%
EBIT margin
9.4%
9.5%
9.9%
10 10.2%
Group GS EBIT
770
EBIT margin
Mercedes
2020E
Quarterly EBIT margin
Van
Income (loss) from investments
2019E
3,459
152,502
Reconciliation
2018E 2018E
13,829
-7,198
% growth
2017E 2017E
2,930
147,508
Group
2016E 2016E
Quarterly EBIT (underlying)
Mercedes EBIT Walk
Underlying EBIT previous year
5,964
8,400
9,050
9,650
10,100
Margin, %
8.1%
10.1%
10.3%
11.1%
11.4%
11.1%
4.2%
Volume
1,851
617
-5 - 593
239
848
-44
2.3%
Mix
-521
126
88
-37
-122
59
2.2%
2.1%
Pricing
800
50
0
0
0
0
9.9%
9.4%
FX
400
298
1,530
840
40
0
Other cost changes
-93
-441
-425
-592
-667
-614
Operating profit this year
Margin, % Source: Company data, Goldman Sachs Global Investment R esearch.
10,200
8,400
9,050
9,650
10,100
10,200
9,600
10.1%
10.3%
11 1 1.1%
11.4%
11.1%
10.3%
December 16, 2015
Europe: Automobiles
Fiat Chrysler in six charts Exhibit 37: FCA is a well-positioned European OEM… Autos GS Competitive Positioning framework
Exhibit 38: …with multiple EBIT streams € mn, 2015E (reported)
Exhibit 39: We forecast capex to peak in 2017… € mn
6,000
100%
5,000
496
BMW 75%
n4,000 m €
Hella
e r o c s h t 50% w o r G
Faurecia
Volkswagen
Autoliv
Daimler
Continental
GKN
Michelin FCA Valeo
25%
CNH Industrial
2,000
5,100
4,495
4,357
10%
11,000
9%
10,000
Nokian
8%
9,000 n m € 8,000
7% 6%
7,000
Volvo
1,000 5%
6,000 0 Renault
0% 25%
9
100
152
48
3,000
Peugeot
0%
-62
12,000
50%
75%
A T F A N
m A t a L
C A P A
100%
Structural score
A E M E
i r a r r e F
t e k r a m s s a M
i t a r e s a M
r e h t O
l a t o T
5,000
1 1 0 2
2 1 0 2
3 1 0 2
4 1 0 2
Capex
E 5 1 0 2
E 6 1 0 2
Plan target
E 7 1 0 2
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
as % of sales
Source: Goldman Sachs Global Investment Research.
Source: Company data, Goldman Sachs Global Investment Research.
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 40: …and FCA to have net cash of ~€7bn by 2020E Adjusted FCA net debt walk (chg. 2014-20E)
Exhibit 41: Product momentum remains strong Volume-weighted portfolio model age
Exhibit 42: We forecast a sharp increase in returns FCA ROIC vs. share price-implied ROIC
100
12%
8 80
-18.1
7
-20
Jeep Cherokee
6
82.2
AR Guiliett Guilietta a
Alfa Romeo Romeo Guilia Chrysler Town & Country
Ram 1500 9% Fiat Panda RAM 2500/3500
-52.7
20 0
Fiat Linea
2.8
60 n b € 40
4%
6%
5 -1.3
1.7
6.9
4
-7.7
) 4 1 0 2 ( t b e d t e N
Jeep Grand Cherokee / Fiat 500
A D T I B E
l a t i p a c g n i k r o W
s m e t i g n i t a r e p o r e h t O
D & R + x e p a C
e r u t c u r t s l a t i p a C
r e h t O
Source: Company data, Goldman Sachs Global Investment
) E 0 2 0 2 ( t b e d t e N
3 2
3%
0% 3 1 0 2
4 1 0 2
E 5 1 0 2 Fiat Group
E E 6 7 1 1 0 0 2 2 Fiat brand
E 8 1 0 2
E 9 1 0 2 Jeep brand
Source: Company data, Goldman Sachs Global Investment Research, IHS Global Insight
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 E E E E E E 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 2 2 2 2 2 2
-3% ROIC
Implied ROIC
Source: Company data, Goldman Sachs Global Investment Research.
December 16, 2015
Europe: Automobiles
Fiat Chrysler Summary Financials (contd.) Exhibit 44: FCA financial summary
€m
2015E
2016E
2017E
2018E
2019E
2020E
Revenue by division
€m
2015E
NAFTA
68,815
71,905
76,674
73,886
72,631
74,105
1Q
792
LATAM
6,937
5,694
5,869
6,277
6,737
6,984
2Q
1,348
APAC
5,726 5,726
9,770 9,770
11,902 11,902
13,153 13,153
14,920 14,920
16,154 16,154
3Q
360
EMEA
20,396
21,399
22,478
23,436
26,695
27,093
4Q
1,472
101,874
10 108,768
11 116,922
11 116,752
12 120,983
12 124,336
5,047
2,878
3,415
3,427
3,427
3,427 12,04 ,040
Mass Market Luxury and Performance Brands
Total
Components and Prod roductio ction n System tems
9,38 ,387
9,87 ,878
10,37 ,375
10,90 ,900
11,45 ,455
-3,855
-4,063
-4,431
-4,445
-4,637
-4,794
112,452
117,461
126,282
126,635
131,228
135,009
17.0%
4.5%
7.5%
0.3%
3.6%
2.9%
NAFTA
4,357
4,675
5,473
5,154
5,187
5,408
1Q
3.0%
LATAM
-62
31
186
367
459
509
2Q
4.6%
APAC
48
274
442
490
568
587
3Q
1.3%
EMEA
152
407
655
717
915
822
4Q
5.0%
4,495
5,387
6,755
6,729
7,130
7,325
Total
3.5%
596
166
220
221
221
221
% growth EBIT by division (reported)
Mass Market Luxury and Performance Brands
2018E
2019E
2020E
Quarterly EBIT margin
Components and Production Systems
367
400
434
470
508
547
Other/eliminations
-358
-353
-308
-320
-358
-394
Total
2017E
3,972
Other/eliminations Total
2016E
Quarterly EBIT (underlying)
5,100
5,600
7,100
7,100
7,500
7,700
58.2%
9.8%
26 26.8%
0.0%
5.6%
2.7%
NAFTA
6.3%
6.5%
7.1%
7.0%
7.1%
7.3%
Mass market EBIT (previous year)
2,252
4,495
5,387
6,755
6,729
7,130
LATAM
-0.9%
0. 0.5%
3. 3.2%
5. 5.9%
6. 6.8%
7. 7 .3%
Volume/mix
1,064
210
1,247
-185
416
300
APAC
0.8%
2.8%
3.7%
3.7%
3.8%
3.6%
Net price price
1,196 1,196
200
100
400
300
0
EMEA
0.7%
1.9%
2.9%
3.1%
3.4%
3.0%
Industrial costs
-1,270
100
0
0
-200
-100 -50
% growth EBIT margin by division
Mass Market
Mass market EBIT Walk
4.4%
5. 5.0%
5. 5.8%
5. 5.8%
5. 5.9%
5. 5.9%
SG&A
11.8%
5.8%
6.4%
6.4%
6.4%
6.4%
CO2 costs
Components and Production Systems
3.9%
4.0%
4.2%
4.3%
4.4%
4.5%
In I nvestments/FX/Others
Other/eliminations
9.3%
8. 8 .7%
7. 7 .0%
7. 7 .2%
7. 7 .7%
8. 8 .2%
Total
4.5%
4.8%
5.6%
5.6%
5.7%
5.7%
Luxury and Performance Brands
Unusual items M as ass market EBIT (current year) Margin,% Unusual items Luxury and Performance Brands
-170
0
0
-100
-100
0
0
0
0
0
0
807
383
20
-141
-15
45
616
0
0
0
0
0
4,495
5,387
6,755
6,729
7,130
7,325 5. 5.9%
4.4%
5. 5.0%
5. 5.8%
5. 5.8%
5. 5.9%
-1,068
142
0
0
0
0
596
166
220
221
221
221
Components and Production Systems
367
400
434
470
508
547
Other
-358
-353
-308
-320
-358
-394
Group EBIT (reported)
5,100
5,600
7,100
7,100
7,500
7,700
Margin, %
4.5%
4.8%
5.6%
5.6%
5.7%
5.7%
4 942
5 316
6 761
6 711
7 047
7 202
G
EBIT (
d l i
)
December 16, 2015
Europe: Automobiles
Peugeot in six charts Exhibit 45: We see PSA as a poorly-positioned poorly-positioned European OEM… Autos GS Competitive Positioning framework
Exhibit 46: Yet turnaround continues to help margins Automotive margins (%) 6%
100%
BMW 75%
3,200
Faurecia
Autoliv
Daimler
Continental
25%
CNH Industrial
0%
Nokian
Volvo
Peugeot
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 E E E E E E 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 2 2 2 2 2 2
0
-2% Renault
0% 25%
50%
75%
Exhibit 48: …driving an improvement in FCF generation FCF progression 3,000
1,000 n m €
-1,000
5
& t n n e o m i t c e r u u d c o r o r P p
A & G S
D & R
r e h t O
) E 9 1 0 2 ( T I B E
16% Peugeot 207
Peugeot 407 Citroen C4
Peugeot 208 Peugeot 2008
Peugeot 3008
E 7 1 0 2
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
4
Peugeot 508
2
-3,000 Changes in working capital
Source: Company data, Goldman Sachs Global Investment
10% 8% 6%
Peugeot 107 Peugeot 408
4% 2%
3
-2,000
14% 12%
Citroen C3 E 6 1 0 2
s t s o c t u p n I
Exhibit 50: We forecast a sharp increase in returns PSA ROIC vs. share price-implied ROIC
6
E 5 1 0 2
X F
1,780
Exhibit 49: Product momentum slowing Volume-weighted portfolio model age
Citroen C3
2,000
4 1 0 2
x i M
Source: Company data, Goldman Sachs Global Investment Research.
Peugeot 307
3 1 0 2
e c i r P
94
Source: Company data, Goldman Sachs Global Investment Research.
7
2 1 0 2
e m u l o V
68
Automoti Automotive ve EBIT EBIT margin margin
Source: Goldman Sachs Global Investment Research.
1 1 0 2
) 5 1 0 2 ( T I B E
-58
-4%
100%
Structural score
0
1,500
-1,046
1,600
2%
800 1,750
Michelin FCA
0%
-792
400 Volkswagen
GKN
Valeo
150 -288
n 2,400 m €
4%
Hella
e r o c s h t 50% w o r G
Exhibit 47: We expect cost savings and better volume/mix… Auto EBIT walk 2015-20E
1 2 3 4 5 6 7 8 9 0 1 2 3 4 E E E E E 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1 0 0 0 0 0 2 2 2 2 2 PSA grou roup Citro itroe en bran brand d Peug eugeot eot bran rand
Source: Company data, Goldman Sachs Global Investment Research, IHS Global Insight
0% 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 E E E E E E 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 2 -2% 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1 0 0 0 0 0 0 2 2 2 2 2 2 -4% ROIC
Implied ROIC
Source: Company data, Goldman Sachs Global Investment Research.
December 16, 2015
Europe: Automobiles
Peugeot Summary Financials (contd.) Exhibit 52: PSA financial summary *Net Income in P&L excludes minority interest
€m
2015E 2015E
2016E 2016E
2017E 2017E
2018E 2018E
2019E 2019E
2020E 2020E
Revenue by division
€m
2015E 2015E
2016E 2016E
2017E 2017E
2018E 2018E
63
1,750 1,750
1,700 1,700
1,880 1,880
1,890
1,950 1,950
0.2%
4. 4 .6%
4. 4 .6%
5. 5 .0%
5. 5 .0%
5. 5 .0%
Automotive Automotive
37,670 37,670
36,850 36,850
37,480 37,480
37,560 37,560
39,100 39,100
39,270 39,270
1H
1,424
Faurecia
20,810
21,905
22,565
23,285
24,246
24,777
2H
1,265
Total
2,689
Financial services
0
0
0
0
0
0
Other
-3,030
-3,040
-3,110
-3,140
-3,270
-3,310
Total
55,450
55,715
56,935
57,705
60,076
60,737
3%
0%
2%
1%
4%
1%
1,750
1,700 1,700
1,880 1,880
1,890 1,890
1,950
1,780 1,780
1H
4.9%
890
1,020
1,084
1,170
1,250
1,290
2H
4.8%
Total
4.8%
% growth EBIT by division
Automotive Automotive Faurecia Financial services
2020E 2020E
Half-yearly EBIT margin
0
0
0
0
0
0
49
51
53
54
56
57
Total
2,689
2,771
3,017
3,114
3,256
3,127
% growth
197%
3%
9%
3%
5%
-4%
Automotive Automotive
4.6%
4.6%
5.0%
5.0%
5.0%
4.5%
EBIT prev previous ious year year
Faurecia
4.3%
4. 4 .7%
4. 4 .8%
5. 5 .0%
5. 5 .2%
5. 5 .2%
Margin, %
Other
-1.6%
-1.7%
-1.7%
Total
4.8%
5.0%
5.3%
5.4%
5.4%
5.1%
Price
Other
2019E 2019E
Half-yearly EBIT (underlying)
EBIT margin by division
Auto EBIT Walk
Financial services Volume
-70
120
-10
250
110
28
-186
-217
-212
-218
-213
Mix
216
-75
3
33
45
-63
FX
238
-68
0
0
0
0
44
138
94
0
0
0
Production & procurement
600
300
300
300
300
300
SG&A
Input costs
300
150
0
0
0
0
R&D
60
-47
-172
-21
-45
-3
Other
101
-192
52
-7 -79
-272
-301
1,750
1,700
1,880
1,890
1,950
1,780
4.6%
4.6%
5.0%
5.0%
5.0%
4.5%
EBIT current year
Margin, % Source: Company data, Goldman Sachs Global Investment R esearch.
100
December 16, 2015
Europe: Automobiles
Volkswagen in six charts Exhibit 53: Despite a basically favourable opportunity set… Autos GS Competitive Positioning framework
Exhibit 54: …VW has been engulfed in controversy… VW pref/BP since Dieselgate/Deepwater Dieselgate/Deepwater (perf. Indexed)
1,200
100
100%
Exhibit 55: VW’s FCF to decline into 2016E € bn
95
Hella
e r o c s h t 50% w o r G
Faurecia
85
Volkswagen
Autoliv
Daimler
Continental
GKN
25%
CNH Industrial
800
80 600
75
Michelin FCA Valeo
1,000
90
BMW 75%
70
Nokian
Volvo
400
65 200
60
Peugeot 55
Renault 0%
25%
50%
0 2013 2013
50
0% 75%
T+0
100%
T+1
T+2
T+3
T+4
T+5
2014 2014
2015 2015E E 2016E 2016E 2017E 2017E 2018E 2018E 2019E 2019E 2020E 2020E
T+6 Automotive Automotive free cash cash flow ex working working capital capital
VW pref prefs s (v DAX) DAX)
Structural score
BP (v FTSE FTSE))
Change in working capital
Source: Goldman Sachs Global Investment Research.
Source: Company data, Goldman Sachs Global Investment Research.
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 56: Product portfolio remains relatively young Volume-weighted portfolio model age
Exhibit 57: We expect VW to hold dividends broadly flat in 2015-16E €, %
Exhibit 58: Limited valuation upside vs. sector average VW ROIC vs. share price-implied ROIC
7
6
Passat
Tiguan
Polo 5
Golf
Golf
Polo
Golf
5
Q5
20% 10%
Tiguan Sagitar/Jetta Polo/ Lavida/ A6
Passat
A3
4
4 15%
10% 2
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 E E 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1 0 0 2 2 VW group
VW brand
E 7 1 0 2
Audi
E 8 1 0 2
E 9 1 0 2
8%
3 6% 4% 5%
1
3
2
14% 12%
A4 Lavida
6
25%
2% 0 1 0 2
1 1 0 2
2 1 0 2
3 1 0 2
4 1 0 2
E 5 1 0 2
Divi Dividen dend d per per share share (pre (prefs) fs)
E 6 1 0 2
E 7 1 0 2
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
Payout Payout ratio ratio (RHS (RHS))
Source: Company data, Goldman Sachs Global Investment
0%
0%
3 0 0 2
4 0 0 2
5 0 0 2
6 0 0 2
7 0 0 2
8 0 0 2
ROIC
9 0 0 2
0 1 0 2
1 1 0 2
2 1 0 2
3 1 0 2
4 E E E E E E 1 5 6 7 8 9 0 0 1 1 1 1 1 2 2 0 0 0 0 0 0 2 2 2 2 2 2
Implied ROIC
Source: Company data, Goldman Sachs Global Investment
December 16, 2015
Europe: Automobiles
Volkswagen Summary Financials (contd.) Exhibit 60: VW financial summary
€m
2015E 2015E
2016
2017E 2017E
2018E
2019E 2019E
2020E 2020E
Revenue by division
VW cars Audi Audi
€m
2015E
105,030
96,715
97,975
100,769
101,528
101,578
1Q
3,328
58,032 58,032
58,483 58,483
61,440 61,440
60,874 60,874
63,132 63,132
64,568 64,568
2Q
3,492 3,492
Porsche
22,797
21,529
21,721
22,682
23,656
27,058
3Q
-3,478
Other car brands
22,643
21,921
23,397
24,709
24,000
24,682
4Q
2,652
CV (incl. Scania, MAN)
34,600
36,209
38,201
39,127
39,932
41,774
Financial services
26,567
27,895
29,290
30,754
32,292
33,907
Total
-53,357
-53,675
-53,929
-54,590
-57,463
-61,032
Group
216,311
209,078
218,094
224,325
227,078
232,535
6.8%
-3 -3.3%
4.3%
2.9%
1.2%
2.4%
1,725
241
655
1,009
674
318
1Q
6.3%
5,199 5,199
4,815 4,815
6,192 6,192
6,706 6,706
6,958 6,958
7,101 7,101
2Q
6.2% 6.2%
EBIT by division*
VW cars Audi Audi Porsche
3,500
3,172
3,110
3,203
3,297
3,878
3Q
-6.8%
1,035
1,081
1,277
1,464
1,351
1,390
4Q
4.7%
CV (incl. Scania, MAN)
1,801
2,119
2,499
2,684
2,841
3,205
Financial services
1,932
2,029
2,131
2,237
2,349
2,466
Other
-2,500
-2,557
-3,014
-2,999
-2,460
-1,937
Group
12,694
10,900
12,849
14,303
15,011
16,421
0.0%
-14.1%
17.9%
11.3%
4.9%
9.4%
1.6%
0.2%
0.7%
1.0%
0.7%
0.3%
9.0% 9.0%
8.2% 8.2%
10.1% 10.1%
11.0% 11.0%
11.0% 11.0%
11.0% 11.0%
15.4%
14.7%
14.3%
14.1%
13.9%
14.3%
EBIT margin by division
VW cars Audi Audi Porsche
2018E 2018E
2019E
2020E 2020E
Quarterly EBIT margin
Other car brands
% growth
2017E
5,994
Other % growth
2016
Quarterly EBIT (including one-off)
Total
2.8%
Group EBIT Walk
EBIT previous year
12,697
5,994
10 10,900
12 12,849
14 14,303
15 15,011
Margin Margin,, %
6.3% 6.3%
2.8% 2.8%
5.2% 5.2%
5.9% 5.9%
6.4%
6.6% 6.6%
-110
-1 -1,220
345
445
224
767
650
142
2,161
1,141
52
0
Other car brands
4.6%
4.9%
5.5%
5.9%
5.6%
5.6%
Volume/Price/Mix
CV (incl. Scania, MAN)
5.2%
5.9%
6.5%
6.9%
7.1%
7.7%
Currency
Financial services
7.3%
7.3%
7.3%
7.3%
7.3%
7.3%
Product Costs
1,800
1,200
1,200
1,200
1,200
1,200
Other
4.7%
4.8%
5.6%
5.5%
4.3%
3.2%
Fixed Costs
-2,100
-1,900
-1,800
-1,700
-1,600
-1,600
Group
5.9%
5.2%
5.9%
6.4%
6.6%
7.1%
Commercial vehicles
26
388
449
235
207
415
230
97
101
107
112
117
-7,200
6,200
-508
26
51 5 12
51 5 12
Operating pr of ofit current year
5,994
10, 90 900
12,849
1 4, 4,303
15,011
Margin, %
2.8%
5.2%
5.9%
6.4%
6.6%
7.1%
Operating profit ex PPA
7,044
11,830
13,659
15,063
15,721
17,081
Finco Others
16,421
December 16, 2015
Europe: Automobiles
Porsche in charts Exhibit 61: Porsche trades below its NAV driven by...
Exhibit 62: ...legal liabilities and/or holding discount
Exhibit 63: Porsche has c.€5.4 bn of legal claims €bn
6,000
140
-45% 0.2
5,000
120
0.2
-40% 1.20
100
n m €
80 €
4,000 -35% 3,000
1.80
5.4
-30%
60
2,000
40
-25%
1,000
2.0
20 0
0
3 1 c e D
4 1 b e F
4 1 r p A
4 1 n u J
4 1 g u A
4 4 1 - 1 t c c e O D
Porsche share price
5 5 1 - 1 r b p e F A
5 1 n u J
5 1 g u A
5 5 1 - 1 t c c e O D
3 1 c e D
4 1 b e F
4 1 r p A
4 4 4 4 1 - 1 - 1 - 1 c n g t u u c e J A O D
5 1 b e F
5 1 r p A
-20% 5 5 5 5 1 - 1 - 1 - 1 c n g t u u c e J A O D
Implied legal liabilities assuming no discount Implied discount assuming no legal liabilities (RHS)
NAV per share (€)
Source: Datastream.
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 64: SOTP analysis implies a €47 valuation €mn, € per share; 12-month price target timeframe
Exhibit 65: Shares affected by VW scandal €
Porsch Porsche e SE
Valuat Valuation ion at VW
Valuat Valuation ion at GS
300
curren currentt price price
pref. pref. price price target target
250
154
154
200
13 137
129
Value
21,021
19,866
150
Net liquidity Pension Assumed legal liabilities
1,001 -20 -3,000 19,001 306 62 -20%
1, 001 -20 -3,000 17,846 306 58 -20%
100
Net asset value
Adj NOSH NAV per share
Holding company discount Porsche SE PT
50
47
100
80
Source: Company data, Goldman Sachs Global Investment R esearch.
60
40
20
50 0
3 1 c e D
4 4 4 1 1 - 1 r b p n e u F A J
4 1 g u A
VW shar share e pric price e
Source: Datastream.
4 4 1 - 1 t c c e O D
5 5 5 1 1 - 1 r b p n e u F A J
5 1 g u A
0 5 5 1 - 1 t c c e O D
Pors Porsch che e shar share e pric price e (RHS (RHS))
r e v o n a H
t r a g t t u t S
K U
s r e h t O
Source: Company data, Goldman Sachs Global Investment Research.
Volkswagen Stake
NOSH VW Ords value per share
g i e w h c s n u a r B
s m i a l c l a t o T
December 16, 2015
Europe: Automobiles
Continental in six charts Exhibit 66: Conti is a well positioned supplier Autos GS Competitive Positioning framework
Exhibit 67: Attractive portfolio of businesses 2014 revenues by division
100%
Contitech 11.3%
75%
60,000
Chassis & Safety 21.6%
CVT Tires 5.8%
BMW Faurecia
Autoliv
Continental Michelin FCA
Valeo
25%
CNH Industrial
12.5% 12.0% 11.5%
11.2%
40,000
Volkswagen
GKN
12.1% Org. growth 201619E avg. = 5.7%
50,000
Hella
e r o c s h t 50% w o r G
Exhibit 68: Strong organic growth for 2016-19 € mn
11.0%
Daimler 30,000
10.5%
Nokian
Volvo
20,000
PLT Tires 22.3%
Powertrain 18.7%
Peugeot
10.0%
10,000
9.5%
0
Renault
9.0%
0% 0%
25%
50%
75%
100%
Interior 20.2%
Structural score
Reve Revenu nue e
Source: Goldman Sachs Global Investment Research.
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 69: Tyre margins to peak in 2015E € mn, %
Exhibit 70: Strong FCF gives Conti optionality € mn
16,000
22.0%
3,250
EBIT EBIT marg margin in (RHS (RHS))
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 71: Returns to drive further rerating ROIC vs. share price-implied ROIC 25%
12,000
20.0%
12,000
18.0% 8,000 16.0% 4,000
14.0%
2,750
10,000
2,250
8,000 6,000
1,750
4,000
1,250
2,000
1 1 0 2
2 1 0 2
3 1 0 2
4 1 0 2
12.0% E 5 1 0 2
Conti Conti Tire Tiress Reve Revenue nue
E 6 1 0 2
E 7 1 0 2
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
-2,000
EBIT EBIT margi margin n (R.H (R.H.S) .S)
Source: Company data, Goldman Sachs Global Investment Research.
-250
15% C I O R 10%
0
750 250
0
20%
5%
-4,000 8 9 0 1 2 3 4 E E E 0 0 1 1 1 1 1 5 6 7 0 0 0 0 0 0 0 1 1 1 2 2 2 2 2 2 2 0 0 0 2 2 2
Free Free equi equity ty cash cash flow flow
M&A M&A
E 8 1 0 2
E 9 1 0 2
E 0 -6,000 2 0 2
Net Net debt debt (RHS (RHS))
Source: Company data, Goldman Sachs Global Investment Research
0%
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 E E E E E E 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 2 2 2 2 2 2 ROIC
Implied ROIC
Source: Company data, Goldman Sachs Global Investment Research, FactSet.
December 16, 2015
Europe: Automobiles
Continental Summary Financials Exhibit 73: Continental financial summary
€m
2015E 2015E
2016E 2016E
2017E 2017E
2018E 2018E
2019E 2019E
2020E 2020E
€m
Revenue by division
Automotiv Automotive e Group Group
23,703 23,703
25,507 25,507
26,839 26,839
28,616 28,616
30,891 30,891
32,832 32,832
Chassis & Safety
8,418
8,940
9,307
9,877
10,636
11,312
Powertrain
7,148
7,536
7,903
8,402
9,021
9,478
Interior
8,137
9,031
9,629
10,336
11,234
12,042
15,685
16,313
17,083
17,756
18,553
19,359
10,220
10,538
11,077
11,510
12,057
12,604
Tires
Passenger & Light Truck Tires
8,062
8,338
8,795
9,150
9,608
10,074
Commercial Vehicle Tires
2,159
2,201
2,283
2,360
2,449
ContiTech
5,464
5,775
6,005
6,246
6,496
-230
-244
-256
-271
-289
-305
39,157
41,575
43,665
46,100
49,156
51,886
13%
6%
5%
6%
7%
6%
2,106 2,106
2,364 2,364
2,561 2,561
2,831 2,831
3,175 3,175
3,461 3,461
Underly Underlying ing EBIT EBIT previ previous ous year
Chassis & Safety
830
900
950
1,040
1,150
1,240
Margin, %
Powertrain
430
505
580
680
805
900
Interior
845
960
1,030
1,110
1,220
1,320
2,500
2, 2,625
2, 2,745
2, 2,845
2, 2,995
3, 3,135
Raw materials
Rubber Group Tires
Other / consolidation Group
% growth
Automotiv Automotive e Group Group
Rubber Group
2018E 2018E
2019E 2019E
2020E 2020E
9.3%
9.5%
9.9%
10.3%
10.5% 10.5%
9.9%
10.1%
10.2%
10.5%
10.8%
11.0%
Powertrain
6.0%
6.7%
7.3%
8.1%
8.9%
9.5%
Interior
10.4%
10.6%
10.7%
10.7%
10.9%
11.0%
Ru Rubber Group
15.9%
16.1%
16.1%
16.0%
16.1%
16.2%
20.0%
19.6%
19.3%
19.1%
19.1%
19.0%
Passenger & Light Truck Tires
20.8%
20.4%
20.0%
19.8%
19.8%
19.7%
2,529
Commercial Vehicle Tires
16.8%
16.9%
16.7%
16.4%
16.2%
15.9%
6,755
ContiTech
8.4%
9.6%
10.1%
10.3%
10.7%
11.0%
11.4%
11.7%
11.8%
11.9%
12.1%
1,676 1,676
2,106 2,106
2,364 2,364
2,561 2,561
2,831 2,831
3,175 3,175
8.0%
8.9%
9.3%
9.5%
9.9%
10.3%
Volume
216
293
237
320
410
348
FX
112
4
0
0
0
0
0
0
0
0
0
0
Group
12.3%
Auto EBIT Walk
Tires
2,040
2,070
2,140
2,200
2,300
2,390
Acquisitions
1,679
1,698
1,759
1,812
1, 90 904
1,989
Cost savings & ot he her
Commercial Vehicle Tires
362
372
381
388
396
401
ContiTech
460
555
605
645
695
745
Group
2017E 2017E
8.9%
Passenger & Light Truck Tires
Other / consolidation
2016E 2016E
Chassis & Safety
EBIT by division
Automotiv Automotive e Group Group
2015E 2015E
EBIT margin
-131
-140
-156
-176
-200
-216
4,475
4, 4,850
5, 5,150
5, 5,500
5, 5,970
6, 6,380
Quarterly EBIT
8
14
0
0
0
0
94
-51
-40
-50
-66
-62
Un Underlying EBIT this year
2,106
2,364
2,561
2,831
3,175
3,461
Margin, %
8.9%
9.3%
9.5%
9.9%
10.3%
10.5%
Quarterly EBIT margin
1Q
1,054
1Q
11.0%
2Q
1,250
2Q
12.5%
3Q
1,076
3Q
11.2%
4Q
1,095
4Q
11.0%
Total
4,475
Total
11.4%
Source: Company data, Goldman Sachs Global Investment R esearch.
December 16, 2015
Europe: Automobiles
Faurecia in six charts Exhibit 74: Faurecia screens less favorably on structural attractiveness Autos GS Competitive Positioning framework 100%
BMW 75%
Exhibit 75: Strong EBIT growth on margin improvement 1,400
6.0%
1,200
5.0%
1,000
4.0%
Hella
e r o c s h t 50% w o r G
Faurecia
600
Michelin FCA
25%
CNH Industrial
3.0%
Daimler
Continental
GKN
Valeo
800
Volkswagen
Autoliv
2.0% 400
Nokian
Volvo
200
(200)
Renault 0% 25%
1.0% 0.0%
0
Peugeot
0%
50%
Exhibit 76: See significant deleveraging by 16E € mn
75%
8 0 0 2
9 0 0 2
0 1 0 2
1 1 0 2
2 1 0 2
3 1 0 2
100%
4 1 0 2
-1.0% E 5 1 0 2
E 7 1 0 2
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 77: We expect FCF (ex-working capital) to turn positive in 2015 € mn, %
Exhibit 78: We see upside based on our SOTP value € mn, 2016E
Segment
Margin EV/EBIT EV/Sales
€ mn
%
Automotive Automotive Seating Seating
8 0 0 2
9 0 0 2
-200
0 1 0 2
1 1 0 2
2 1 0 2
3 1 0 2
4 1 0 2
-10% E 5 1 0 2
E 6 1 0 2
E 7 1 0 2
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
-20% -30%
-400
-40%
0.0x
(250)
-0.5x 8 9 0 1 2 3 4 E E E E E E 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 1 1 1 1 2 2 2 2 2 2 2 2 1 0 0 0 0 0 0 2 2 2 2 2 2 Net debt Factored receivables Net debt / EBITDA (RHS)
-1.0x
Exhibit 79: We forecast improved returns to be sustained ROIC vs. share price-implied ROIC
14%
2,337
32%
Interior Systems
4.0%
7.0x
28%
1,546
21%
Emissions Control
5.0%
7.5x
38%
2,819
38%
8%
Exteriors
4.5%
6.2x
27 27%
665
9%
6%
Enterprise value
4.7%
7.2x
34%
7,366
100%
4%
(726) (363) (191)
-10% -5% -3%
6,086
83%
deduct net debt deduct pension deduct minorities Equity value
137.2
10%
2% 0% -2%
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 E E E E E 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 2 2 2 2 2 ROIC
Implied ROIC
44.4
F CF CF yi el el d (RH S) S)
Source: Company data, Goldman Sachs Global Investment Research.
0.5x
0
37%
Equity value per share
F CF CF -e -e x w or or ki kin g c ap api ta tal
1.0x
250
7.3x
-50% F CF CF
1.5x
500
5.1%
Number of shares
-600
2.0x
750
12%
10%
0
2.5x
1,000
16%
20%
0%
3.0x
1,250
18%
Valuation
200
3.5x
1,500
Source: Company data, Goldman Sachs Global Investment Research.
30%
400
4.0x
1,750
(500)
Source: Goldman Sachs Global Investment Research.
600
4.5x
2,000
margin (RHS)
EBIT (€ mn)
Structural score
E 6 1 0 2
2,250
Source: Company data, Goldman Sachs Global Investment Research
Source: Company data, Goldman Sachs Global Investment Research.
December 16, 2015
Europe: Automobiles
Faurecia Summary Financials Exhibit 80: Faurecia financial summary
€m
2015E
2016E 2016E
2017E
2018E 2018E
2019E 2019E
2020E 2020E
€m
P&L Revenues
Depreciation and Amortisation EBITDA EBIT
Associated Associated Compan Companies ies Financial Result Pre-tax
Tax
2015E 2015E
2016E 2016E
2017E
2018E 2018E
2019E 2019E
2020E 2020E
7,356
Balance Sheet 20,796
21,739
22,397
23,118
24,070
24,595
Current Assets
4,788
5,467
5,866
6,328
6,853
-430
-440
-460
-470
-480
-480
Fixed Assets
2,343
2,486
2,639
2,803
2,986
1,535
1, 1,690
1, 1,780
1, 1,875
1, 1,975
2, 2,025
Total Assets
9,787
10,673
11,290
11,971
12,743
13,536
890
1,025
1,090
1,165
1,245
1,285
Current Liabilities
6,149
6,315
6,369
6,430
6,526
6,613
5
10
11
11
12
13
Long-term Long-term Liabilitie Liabilities s
1,390
1,390
1,390
1,390
1,390
1,390
-150
-100
-80
-70
-65
-60
Equity
2,248
2,969
3, 3,532
4,152
4, 4,828
5, 5,533
175
191
208
224
242
260
24,595
700
890
976
1,061
1,147
1,193
-213
-266
-293
-320
-347
-362
Minority Interests
3,209
Minority Interest
-72
-77
-78
-78
-82
-84
Net Income
366
498
555
613
669
697
Re Revenue
20,796
21,739
22,397
23,118
24,070
EPS
2.95
3.63
4.04
4.45
4.84
5.03
NOPLAT
559
653
698
753
804
828
DPS
0.60
0.75
0.80
0.90
0.95
1.00
Avg. Invested Capital
4,005
4,211
4,491
4,788
5,135
5,492
14.0%
15.5%
15.5%
15.7%
15.7%
15.1%
2.7%
3.0%
3.1%
3.3%
3.3%
3.4%
5.2x
5.2x
5.0x
4.8x
4.7x
4.5x
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
ROIC
ROIC
NOPLAT Margin (%) Asset Turn Turn WACC
Cash Flow
Net income
416
548
605
663
719
747
EV/IC:ROIC/WACC
Depreciation and Amortisation
645
665
690
710
730
740
EV/IC
1,094
1,273
1,358
1,438
1,518
1,561
69
-91
-45
-111
-116
-62
1,163
1,182
1,313
1,327
1,402
1,499
Number of Shares
124
137
137
138
138
138
-872
-920
-956
-980
-1,028
-1,084
Implied Equity Value per Share
35.3
41.2
46.6
52.0
58.1
64.8
21%
Operating Cash Flow Working Capital Operating Cash Flow incl. WC
less Capex Other Investing Investing Cash Flow Free Cash Flow
Share Buyback Dividends Other Financing Financing Cash Flow
4
4
4
4
4
4
-868
-916
-951
-976
-1,024
-1,080
295
266
361
351
378
419
0
21 217
0
0
0
0
-56
-60
-61
-61
-64
-67
0
0
0
0
0
0
-56
157
-61
-61
-64
-67
1
1
1
1
1
1
151.5%
164.7%
164.7%
164.7%
164.7%
164.7%
Implied EV
6,066
6,935
7,397
7,885
8,456
9,045
Implied Equity Value
4,380
5,655
6,400
7,161
8,029
8,952
M&A value
44.4
M&A probability
15%
Price target
41.7
Valuation
EV/Sales
28%
25%
23%
Target EV/Sales
36%
32%
30%
28%
EV/EBIT
6.5x
5.3x
4.7x
4.1x
1,149
726
426
137
-177
-530
Target EV/EBIT
8.3x
6.8x
6.2x
5.5x
Gearing (Net Debt/Equity)
0.5x
0.2x
0.1x
0.0x
0.0x
-0.1x
P/ P /E
11.4x
9.2x
8.3x
7.5x
Change in Net Debt (Cash)
-239
-423
-300
-289
-314
-353
Target P/E
14.1x
11.5x
10.3x
9.4x
Net Debt (Cash)
Source: Company data, Goldman Sachs Global Investment Research., * Net Income in P&L excludes minority interest
December 16, 2015
Europe: Automobiles
Faurecia Summary Financials Exhibit 81: Faurecia financial summary
€m
2015E 2015E
2016E 2016E
2017E 2017E
2018E 2018E
2019E 2019E
2020E 2020E
Revenue by division
Automotive Automotive Seating Seating
€m
2015E 2015E
5,987
6,276
6,457
6,651
6,938 6,938
7,127
1H
424
Interior Systems
5,293
5,522
5,639
5,766
5,966
6,073
2H
466
Emi ss ss io ions Contr ol ol Technol og ogies
7, 19 192
7,516
7, 84 846
8, 21 210
8,608
8, 81 814
Total
2,324 2,324
2,425
2,456
2,492
2,558 2,558
2,582
20,796
21,739
22,397
23,118
24,070
24,595
10%
5%
3%
3%
4%
2%
287
320
336
359
382
392
1H
4.0%
Interior Systems
196
22 221
24 2 48
25 2 59
28 2 80
28 2 85
2H
4.5%
Emissions Control Technologies
331
376
408
452
473
485
Total
4.3%
76
108
99
95
110
123
890
1,025
1,090
1,165
1,245
1,285
4.8%
5.1%
5.2%
5.4%
5.5%
5.5%
Underlying Underlying EBIT previous previous year year
Interior Systems
3.7%
4.0%
4.4%
4.5%
4.7%
4.7%
Margin, %
Emissions Control Technologies
4.6%
5.0%
5.2%
5.5%
5.5%
5.5%
3.3%
4.5%
4.0%
3.8%
4.3%
4.8%
4.3%
4.7%
4.9%
5.0%
5.2%
Automotive Automotive Exteriors Exteriors Group
% growth
EBIT by division
Automotive Automotive Seating Seating
Automotive Automotive Exteriors Exteriors Group
Automotive Automotive Exteriors Exteriors Group
2017E 2017E
2018E 2018E
2019E 2019E
2020E 2020E
890
Half yearly EBIT margin
EBIT margin
Automotive Automotive Seating Seating
2016E 2016E
Half yearly EBIT
EBIT Walk
5.2%
Volume Volume
890
1,025
1,090
1,165
1,245
4.3%
4.7%
4.9%
5.0%
5.2% 51
197
110
77
94
107
Raw materials/FX
94
23
0
0
0
0
Cost reductions
25
20
15
15
15
15
Acquisition Acquisitions s Increase in fixed costs Change in expensed R&D & D&A New contracts Other Underlying EBIT current year
Margin, % Source: Company data, Goldman Sachs Global Investment R esearch.
673 3.6%
0
0
0
0
0
0
-24
-26
-16
-17
-25
-14
-107
-22
-35
-40
-42
-34
27
28
21
22
22
23
5
1
4
1
3
-1
890
1,025
1,090
1,165
1,245
1,285
4.3%
4.7%
4.9%
5.0%
5.2%
5.2%
December 16, 2015
Europe: Automobiles
GKN in six charts Exhibit 82: GKN has Q2 CP Autos GS Competitive Positioning framework 100%
BMW 75%
Hella
e r o c s h t 50% w o r G
Faurecia
Volkswagen
Autoliv
Daimler
Continental
GKN
Michelin FCA Valeo
25%
CNH Industrial
Nokian
Volvo
Peugeot Renault 0% 0%
25%
50%
75%
Exhibit 83: Shares have underperformed on downgrades… Share performance, EPS changes
Exhibit 84: ... as organic growth has slowed in 2015 Revenues and organic growth 10,000
400
31.5
380
31
9,000
360
30.5
8,000
340
30
320
29.5
300
29
280
28.5
260
28
240
27.5
5 1 0 2 / 1 0 / 1 0
5 1 0 2 / 1 0 / 1 3
5 1 0 2 / 3 0 / 2 0
5 1 0 2 / 4 0 / 1 0
100%
5 1 0 2 / 5 0 / 1 0
5 1 0 2 / 5 0 / 1 3
5 1 0 2 / 6 0 / 0 3
5 1 0 2 / 7 0 / 0 3
Share pri ce ce
Structural score
5 1 0 2 / 8 0 / 9 2
5 1 0 2 / 9 0 / 8 2
5 1 0 2 / 0 1 / 8 2
5 1 0 2 / 1 1 / 7 2
Exhibit 86: Valuation looks attractive now GKN EV/EBIT vs. peers
4,000
2,000
18%
16.0x
18%
16%
14.0x
16%
700
14%
12.0x
14%
600
12%
10.0x
12%
500
10%
8.0x
10%
400
8%
6.0x
8%
300
6%
4.0x
6%
200
4%
2.0x
4%
100
2%
0.0x
0
0%
6 7 8 9 0 1 2 3 4 E 0 0 0 0 1 1 1 1 1 5 0 0 0 0 0 0 0 0 0 1 2 2 2 2 2 2 2 2 2 0 2
E BI BI T TA A ( £ m n) n)
E 6 1 0 2
E 7 1 0 2
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
R OI OI C ( %, %, R RH H S) S)
Source: Company data, Goldman Sachs Global Investment Research.
Autoliv
Conti
Faurecia
GKN
6 7 8 9 0 1 2 3 4 E 0 0 0 0 1 1 1 1 1 5 0 0 0 0 0 0 0 0 0 1 2 2 2 2 2 2 2 2 2 0 2
E 5 1 0 2
E 6 1 0 2 Valeo
E 7 1 0 2
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
0%
Orga Organic nic grow growth th (%,R (%,RHS HS))
2% 0%
4 5 6 7 8 9 0 1 2 3 4 E E E 0 0 0 0 0 0 1 1 1 1 1 5 6 7 0 0 0 0 0 0 0 0 0 0 0 1 1 1 2 2 2 2 2 2 2 2 2 2 2 0 0 0 2 2 2 ROIC
Source: Datastream, Goldman Sachs Global I nvestment Research.
E 6 1 0 2
Exhibit 87: See returns improving post 2016 ROIC vs. share price-implied ROIC
800
4 1 0 2
5%
3,000
900
3 1 0 2
10%
5,000
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 85: EBITA and returns expected to improve over 2016-2020
2 1 0 2
15%
6,000
Reve Revenu nues es (£ mn) mn)
Source: Datastream, Goldman Sachs Global I nvestment Research.
1 1 0 2
20%
7,000
EPS
Source: Goldman Sachs Global Investment Research.
0 1 0 2
25%
E E 8 9 1 1 0 0 2 2
Implied ROIC
Source: Company data, Goldman Sachs Global Investment Research.
E 0 2 0 2
December 16, 2015
Europe: Automobiles
GKN Summary Financials Exhibit 88: GKN financial summary
GBPm
2015E
2016E
2017E
2018E
2019E
2020E
GB G BPm
P&L
2015E
2016E
2017E
2018E
2019E
2020E
4,151
Balance Sheet 7,207
7, 7,846
8, 8,192
8, 8,460
8, 8,839
9, 9,155
Current Assets
2,459
2,802
3,098
3,412
3,777
-262
-282
-302
-322
-332
-332
Fixed Assets
2,620
2,649
2,699
2,747
2,808
2,893
EBITDA
809
869
977
1,047
1,112
1,189
Total Assets
7,162
7,534
7,880
8,241
8,668
9,135
EBIT
547
587
675
725
780
857
Current Liabilities
2,033
2,242
2,383
2,505
2,653
2,787
52
59
54
56
60
64
Long-ter Long-term m Liabilities Liabilities
3,208 3,208
3,143 3,143
3,063 3,063
2,983 2,983
2,903 2,903
2,823 2,823
-129
-138
-135
-131
-126
-122
Equity
1,921
2,149
2,434
2,753
3,112
3,525
25
28
31
34
37
40
Revenue
7,207
7,846
8,192
8,460
8,839
9,155
NOPLAT
533
565
612
648
690
749
4,599 4,599
4,923 4,923
4,993 4,993
5,067
5,148 5,148
5,250 5,250
11.6%
11.5%
12.3%
12.8%
13.4%
14.3%
7.4%
7.2%
7.5%
7.7%
7.8%
8.2%
1.6x
1.6x
1.6x
1.7x
1.7x
1.7x
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
Revenues
Depreciation and Amortisation
Associate Associated d Compan Companies ies Financial Result Pre-tax
Tax Minority Interest
470
50 508
59 594
65 650
71 714
79 799
-108
-127
-149
-163
-178
-200
-5
-5
-5
-5
-5
-5
352
376
441
483
530
594
EPS
21.35
21.90
25.65
28.10
30.88
34.58
DPS
8.80
9.20
9.70
10.20
10.70
11.20
Net Income
Minority Interests
RO ROIC
Avg. Invested Invested Capital Capital ROIC
NOPLAT Margin (%)
Cash Flow
Net income
357
376
441
483
530
594
As Asset Turn
Depreciation and Amortisation
262
282
302
322
332
332
WACC
Operating Cash Flow
689
728
793
850
902
953
EV/IC:ROIC/WACC
Working Capital
-26
-33
-28
-22
-31
-26
EV/IC
Operating Cash Flow incl. WC
663
695
764
828
871
927
less Capex
-393
-381
-418
-430
-448
-467
Other Investing
-499
0
0
0
0
0
Investing Cash Flow
-892
-381
-418
-430
-448
-467
Free Cash Flow
-229
315
347
398
423
460
Share Buyback
1
1
1
1
1
1
163.2%
163.2%
163.2%
163.2%
163.2%
163.2%
Implied EV
7,505
8,033
8,148
8,269
8,401
8,567
Implied Equity Value
4,931
5,618
5,916
6,264
6,639
7,076
Number of Shares
1,673
1, 1,718
1, 1,718
1, 1,718
1, 1,718
1, 1,718
2.95
3.27
3.44
3.65
3.87
4.12
ROIC based value per share
200
0
0
0
0
0
-143
-1 -153
-1 -160
-1 -169
-1 -177
-1 -186
0
0
0
0
0
0
57
-153
-160
-169
-177
-186
Net Debt (Cash)
795
634
447
218
-28
-302
Gearing (Net Debt/Equity)
0.4x
0.3x
0.2x
0.1x
0.0x
-0.1x
P/E
13.3x
13.0x
11.1x
10.1x
Change in Net Debt (Cash)
171
-162
-187
-229
-246
-275
Target P/E
15.3x
14.9x
12.8x
11.6x
Dividends Other Financing Financing Cash Flow
Source: Company data, Goldman Sachs Global Investment R esearch.
Valuation
EV/Sales
111%
91%
85%
80%
Target EV/Sales
114%
10 102%
96%
90%
EV/EBIT
14.7x
12.2x
10.3x
9.3x
Target EV/EBIT
15.0x
13.7x
11.6x
10.5x
December 16, 2015
Europe: Automobiles
GKN Summary Financials Exhibit 89: GKN financial summary
€m
2015E 2015E
2016E 2016E
2017E 2017E
2018E 2018E
2019E 2019E
2020E 2020E
Revenue by division
Driveline Powder Metallurgy Land Systems Aerospac Aerospace e Other Businesses
€m
2015E 2015E
3,535
3,669
3,788
3,875
4,050
4,165
1H
245
913
952
987
1,003
1,044
1,076
2H
302
Total
547
697
652
686
722
748
773
2,455 2,455
3,001 3,001
3,151
3,309
3,474 3,474
3,648
45
47
48
49
52
53
7,645
8,322
8,660
8,958
9,368
9,715
3%
9%
4%
3%
5%
4%
Driveline
290
305
320
330
350
360
1H
Powder Metallurgy
105
11 111
11 117
11 119
12 125
13 130
2H
9.0%
28
30
38
47
54
61
Total
9.0%
290
310
360
387
410
435
-2
0
0
0
0
0
686
730
806
853
909
953
8.2%
8.3%
8.4%
8.5%
8.7%
8.6%
11.6%
11 11.7%
11 11.8%
11 11.9%
12 12.0%
12 12.1%
Group
% growth
EBIT by division
Land Systems Aerospac Aerospace e Other Businesses Group
Powder Metallurgy Land Systems
2018E 2018E
2019E 2019E
2020E 2020E
9.0%
Driveline EBIT Walk
4.0%
4.6%
5.6%
6.5%
7.2%
7.8%
Aerospac Aerospace e
11.8%
10.3%
11.4% 11.4%
11.7%
11.8% 11.8%
11.9% 11.9%
Other Businesses
-3.8%
0. 0.9%
-0.9%
-0.6%
-0.2%
0. 0.1%
9.0%
8.8%
9.3%
9.5%
9.7%
9.8%
Group
2017E 2017E
Half yearly EBIT margin
EBIT margin
Driveline
2016E 2016E
Half yearly EBIT
Underlying EBIT previous year Margin, % Volume/Mix Volume/Mix Pr Pricing FX Raw materials Cost savings and other Underlying EBIT current year
Margin, % Source: Company data, Goldman Sachs Global Investment R esearch., * Half year EBI T figures excludes JVs and corporate costs
280
290
305
320
330
350
8.1%
8.2%
8.3%
8.4%
8.5%
8.7%
44
50
43
36
58
44
-34
-53
-55
-57
-58
-61
-4
-1
0
0
0
0
5
5
5
5
5
5
-1
14
22
26
15
21
290
305
320
330
350
360
8.2%
8.3%
8.4%
8.5%
8.7%
8.6%
December 16, 2015
Europe: Automobiles
Hella in six charts Exhibit 90: Hella is well positioned among auto parts Autos GS Competitive Positioning framework
Exhibit 91: ... with a strong positioning in lighting and electronics Market share in segments, 2014
Exhibit 92: We see an above average organic growth outlook Organic growth (%), 2016-19E 10%
100% Electronics
Lighting
8% BMW 75%
6%
Hella
e r o c s h t 50% w o r G
Faurecia
Volkswagen
Autoliv
Daimler
Continental
GKN
Michelin FCA Valeo
25%
CNH Industrial
4% Others 31%
Hella 18%
2%
Other 82%
Nokian
Volvo
Leaders: Bosch, Continent al, Denso
Peugeot Renault
Koito, Valeo, Magneti Marelli >55%
Hella 12%
0%
r o e l e n r a a V W g r o B
0% 0%
25%
50%
75%
100%
o t u A l a t n e n i t n o C
c i r t c e l E y e l n a t S
r N i v l a o o a i l l s t c i o e n r K e t r u H e e G u D M A a F
p r o C r a e L
s l o r t n o C n o s n h o J
o c e n n e T
. g t n i n I r d e l o w o H a T n a D
. t n I a n g a M
Structural score
Source: Goldman Sachs Global Investment Research.
Source: Company data. Source: Goldman Sachs Global Investment Research.
Exhibit 93: ..and strong margin expansion Hella’s EBIT margin progression 9%
Exhibit 94: Improving FCF driven by higher profits FCF pre-dividend and FCF yield 500
10.5%
0.3%
8%
0.4%
8.4% 300
8.5%
1.0%
6% 6.4%
8%
7.1% 6%
200
5.1%
-0.8% 5%
10%
400
1.1%
7%
100
4%
3.4% 2.4%
4%
) 4 1 0 2 ( n i g r a m T I B E
n i g r a m s s o r G
D & R
A & G S
s e t a i c o s s a f o e r a h S
Exhibit 95: Attractive valuation among global suppliers EV/EBITDA (2016E) vs 2016-19E org. growth
r e h t O
) E 9 1 0 2 ( n i g r a m T I B E
Source: Company data, Goldman Sachs Global Investment
0 -100
3 1 0 2
4 1 0 2
E 5 1 0 2
E 6 1 0 2
E 7 1 0 2
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
) 6 1 Y C ( A D T I B E / V E
10.0X 9.0X Autoliv Johnson Controls
8.0X
GKN 7.0X
Meritor
6.0X
Denso
2%
5.0X
0%
4.0X
-2%
3.0X
Magna Int. Dana Holding
Continental BorgWarner Stanley Electric Valeo
Lear Corp
Tenneco Hella Tower International Faurecia
-200
0% FCF FCF (pre (pre-d -div ivid iden end) d)
FCF FCF yiel yield d (%, (%, RHS) RHS)
Source: Company data, Goldman Sachs Global Investment Research, FactSet.
2%
4%
6%
8%
10%
Organic growth (16-19 avg.
Source: Goldman Sachs Global Investment Research.
December 16, 2015
Europe: Automobiles
Hella Summary Financials Exhibit 96: Hella financial summary
€m
2015E 2015E
2016E 2016E
2017E 2017E
2018E 2018E
2019E 2019E
2020E 2020E
€m
P&L Revenues
5,835
6, 6,415
6, 6,830
7, 7,171
7, 7,510
7, 7,879
-336
-430
-478
-516
-548
-583
EBITDA
766
844
1,012
1,114
1,187
1,261
EBIT
429
415
534
598
639
678
Depreciation and Amortisation
Associated Associated Companie Companies s
2015E 2015E
2016E 2016E
2017E 2017E
2018E 2018E
2019E
2020E 2020E
Balance Sheet
Current Assets
2,636
2,794
3,053
3,352
3,691
4,075
Fixed Assets
1,612
1,564
1,482
1,375
1,253
1,109
Total Assets
4,917
5,052
5,252
5,461
5,689
5,942
Current Liabilities
1,349
1,391
1,437
1,470
1,503
1,538
55
52
61
72
83
97
Long-term Long-term Liabilities Liabilities
1,658
1,658
1,658 1,658
1,658 1,658
1,658
1,658
Financial Result
-36
-33
-33
-31
-27
-23
Equity
1,910
2,004
2,157
2,333
2,528
2,746
Pre-tax
394
38 381
50 501
56 568
61 612
65 656
Minority Interests
30
40
51
63
76
90
Tax
-98
-95
-125
-142
-153
-164 8,268
Minority Interest
-8
-10
-11
-12
-13
-14
Net Income
287
276
365
414
446
478
Revenue
6,415
6,830
7,171
7,510
7,879
EPS
2.70
2.48
3.28
3.72
4.01
4.30
NOPLAT
333
370
416
445
464
471
DPS
0.77
0.75
0.99
1.12
1.20
1.29
Av Avg. Invested Capital
3,015
3, 3 ,074
3, 3 ,096
3, 3 ,089
3, 3 ,048
2, 2 ,968
ROIC
11.1%
12.0%
13.4%
14.4%
15.2%
15.9%
5.2%
5.4%
5.8%
5.9%
5.9%
5.7%
2.1x
2.2x
2.3x
2.4x
2.6x
2.8x
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
ROIC*
NOPLAT Margin (%) Asset Turn Turn WACC
Cash Flow
Net income
287
27 2 76
36 3 65
41 4 14
44 4 46
47 4 78
EV/IC:ROIC/WACC
Depreciation and Amortisation
336
430
478
516
548
583
EV EV/IC
Operating Cash Flow
660
742
914
1,052
1,176
1,263
Working Capital
-98
-103
-99
-93
-96
-62
Operating Cash Flow incl. WC
563
640
815
959
1,079
1,201
-413
-481
-546
-609
-676
-709
less Capex Other Investing Investing Cash Flow Free Cash Flow
Share Buyback Dividends Other Financing
-46
-63
-65
-67
-69
-73
-459
-544
-611
-677
-745
-782
104
96
204
283
334
419
0
0
0
0
0
0
-59
-82
-83
-109
-124
-134
-88
0
0
0
0
0
-148
-82
-83
-109
-124
-134
131
118
-4
-177
-387
-673
Gearing (Net Debt/Equity)
0.1x
0.1x
0.0x
-0.1x
-0.2x
Change in Net Debt (Cash)
-294
-14
-121
-173
-210
Financing Cash Flow
1
1
1
1
1
1
1.55
1.55
1.55
1.55
1.55
1.55
Implied EV
4,670
4,763
4,796
4,786
4,722
4,598
Implied Equity Value
4,274
4,476
4,670
4,858
5,065
5,247
Number of Shares
111
111
111
111
111
111
ROIC based value per share
38.5
40.3
42.0
43.7
45.6
47.2
EV/IC:ROIC/WACC (at g = 1%)
1.64
Implied EV
5,048
Implied Equity value
4,761
Implied Equity Value per Share
42.9
g
1.0%
Price target
42.9
Valuation Net Debt (Cash)
EV/Sales
68%
62%
57%
52%
-0.2x
Target EV/Sales
80%
74%
68%
62%
-286
EV/EBIT
10.5x
7.9x
6.8x
6.1x
Target EV/EBIT
12.4x
9.4x
8.2x
7.3x
P/E
14.6x
11.1x
9.8x
9.1x
Target P/E
17.3x
13.0x
11.5x
10.7x
Source: Company data, Goldman Sachs Global Investment Research, * ROIC framework adjusts for May year end
December 16, 2015
Europe: Automobiles
Hella Summary Financials Exhibit 97: Hella financial summary
€m
2015E 2015E
2016E 2016E
2017E 2017E
2018E 2018E
2019E 2019E
2020E 2020E
Revenue by division
Automotive Automotive o/w Lighting o/w Electronics Aftermarket Aftermarket Special applications
€m
2015E 2015E
4,591
4,992
5,357
5,648
5,949
6,278
1Q
95
2,458
2,671
2,863
3,016
3,175
3,348
2Q
127
2,210
2,401
2,574
2,712
2,855
3,010
3Q
88
1,187
1,270
1,334
1,387
1,429
1,471
4Q
120
Total
430
310
313
319
335
352
370
-253
-160
-180
-200
-220
-240
5,835
6,415
6,830
7,171
7,510
7,879
9%
10%
6%
5%
5%
5%
Automotive Automotive
354
322
419
469
503
536
1Q
Aftermarket Aftermarket
73
89
100
111
114
118
2Q
8.4%
19
23
26
29
32
35
3Q
6.3%
Eliminations/Other Group
% growth EBIT by division
Special applications
2017E 2017E
2018E 2018E
2019E 2019E
2020E 2020E
Quarterly EBIT margin
Eliminations/Other
-16
-20
-10
-10
-10
-10
Group
430
415
534
598
639
678
26%
-3%
29 2 9%
12 1 2%
7%
6%
Automotive Automotive
7.7%
6.5%
7.8%
8.3%
8.5%
8.5%
Underlying Underlying EBIT previou previous s year
Aftermarket Aftermarket
6.1%
7.0%
7.5%
8.0%
8.0%
8.0%
Margin, Margin, %
% growth
2016E 2016E
Quarterly EBIT
EBIT margin
7.2%
4Q
7.4%
Total
7.4%
Auto EBIT Walk
341
430
415
534
598
639
6.4%
7.4%
6.5%
7.8%
8.3%
8.5% 87
Special applications
6.1%
7.5%
8.0%
8.5%
9.0%
9.5%
Eliminations/Other
6.5%
12.5%
5. 5 .6%
5. 5 .0%
4. 4 .5%
4. 4 .2%
Gross margin
77
100
189
95
78
Group
7.4%
6.5%
7.8%
8.3%
8.5%
8.6%
Share of associates
18
-3
9
10
12
13
Operating expenses( R&D, SG&A, Other)
-6
-111
-79
-42
-49
-61
Underlying EBIT current year
Margin, % Source: Company data, Goldman Sachs Global Investment R esearch.
430
415
534
598
639
678
7.4%
6. 6.5%
7. 7.8%
8. 8.3%
8. 8.5%
8. 8.6%
December 16, 2015
Europe: Automobiles
Valeo in six charts Exhibit 98: Valeo has third quartile CP Autos GS Competitive Positioning framework
Exhibit 99: Strong organic growth to continue
100%
Hella
e r o c s h t 50% w o r G
Faurecia
40%
20,000
30% 20%
Autoliv
Continental Michelin FCA
25%
CNH Industrial
10%
Daimler
14,000
10,000
0%
25%
50%
75%
7 8 9 0 1 2 3 4 E E 0 0 0 1 1 1 1 1 5 6 0 0 0 0 0 0 0 0 1 2 2 2 2 2 2 2 2 1 0 0 2 2
100%
160
E 8 1 0 2
E 9 1 0 2
E 0 2 0 2
-30%
6% 4%
Operati ng Prof itit D ec re rease ( in inc re rease) i n net d eb ebt
0
2% 2 3 4 5 6 7 8 9 0 1 2 3 4 E E E E E E 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1 0 0 0 0 0 0 2 2 2 2 2 2 EBIT (€ mn)
2016E 2016E 2017E 2017E
0%
ROIC (RHS)
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 102: FCF conversion to improve € mn
700
8%
600
y/y organic growth (RHS)
Valeo revenues (€ mn)
800
140
E 7 1 0 2
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 101: ..despite R&D capitalization benefits reversing As a % of sales
12%
200
Structural score
Source: Goldman Sachs Global Investment Research.
14%
1,000
400
Peugeot
0%
16%
-20%
8,000
Renault
18%
1,400
800
-10%
Volvo
6,000
20%
1,600
10%
0% 12,000
Nokian
1,800
1,200
16,000
Volkswagen
GKN
Valeo
22,000
18,000
BMW 75%
Exhibit 100: ..driving profits and returns
Exhibit 103: We forecast returns to improve ROIC vs. share price-implied ROIC
2010 2010-13 -13
2014
2015E 2015E
2018 2018E E
2019E 2019E
2, 84 841
862
1, 1, 02 025
1,150
1, 25 250
1 ,3 ,370
1, 1,530
3 39 39
42
209
2 35
2 54
29 0
3 35
25%
20%
120 600
100 80
500
deduct net capital increase
(57)
53
0
0
0
0
0
15%
add back dividends
312
132
171
212
252
286
320
C I O R 10%
add back net M&A Free equity cash flow
60
150
20 2 03
0
0
0
0
0
744
430
380
447
506
576
655
400
of which working capital
185
40
37
9
8
9
11
300
FECF pre wor ki ng capital
559
390
343
438
499
567
644
40 20
as a % of Operati ng Margi n
0
6 7 8 9 0 1 2 3 4 E E E E E E 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 2 2 2 2 2 2 2 2 2 2 1 0 0 0 0 0 0 2 2 2 2 2 2 Depre Depreci ciat atio ion n (RHS (RHS))
20%
45%
33%
38%
40%
41%
200
Source: Company data, Goldman Sachs Global Investment Research
42%
5%
0%
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 E E E E E E 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 2 2 2 2 2 2 ROIC Implied ROIC
Net Net capit capital alise ised d R&D R&D
Source: Company data, Goldman Sachs Global Investment Research, FactSet. Source: Company data, Goldman Sachs Global Investment
December 16, 2015
Europe: Automobiles
Valeo Summary Financials Exhibit 104: Valeo financial summary
€m
2015E
2016E
2017E
2018E
2019E
2020E
€m
P&L Revenues Depreciation and Amortisation
2015E
2016E
2017E
2018E
2019E
2020E
Balance Sheet 14,404
15,482
16,417
17,471
18,759
19,898
-759
-819
-879
-949
-989
-1,029
Current Assets Fixed Assets
5,145
5,641
6,112
6,648
7,283
7,955
2,676
2,865
3,064
3,273
3,502
3,731 15 15,705
EBITDA
1,834
2,023
2,180
2,378
2,587
2,777
Total Assets
10,947
11 11,797
12 12,637
13 13,552
14 14,606
EBIT
1,025
1,150
1,250
1,370
1,530
1,670
Current Liabilities
4,768
4,999
5,198
5,423
5,699
5,942
45
54
51
59
68
78
Long-term Long-term Liabilities Liabilities
2,680
2,680
2,680
2,680
2,680
2,680
3,499
4,118
4,758
5,449
6,227
7,083
233
260
289
321
357
397
15,482
16,417
17,471
18,759
Associated Companies Companies Financial Result
-81
-71
-61
-51
-41
-31
Pre-tax
903
1,047
1,154
1,292
1,471
1,631
-167
-199
-243
-296
-351
-388
Tax
Equity Minority Interests
Minority Interest
-38
-44
-48
-52
-59
-65
Net Income
697
804
864
944
1,062
1,178
Revenue
ROIC 14,404
EPS
8.89
10.19
10.88
11.82
13.21
14.56
NOPLAT
732
DPS
2.70
3.20
3.60
4.00
4.50
4.80
6,547
6,960
ROIC
14.3%
15.6%
16.1%
17.0%
17.9%
18.6%
5.1%
5.5%
5.7%
6.0%
6.3%
6.5%
2.8x
2.8x
2.8x
2.8x
2.9x
2.9x
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
WACC 697
804
864
944
1,062
1,178
EV/IC:ROIC/WACC
819
879
949
989
1,029
EV/IC
1,520
1,685
1,814
1,952
2,098
2,245
37
9
8
9
11
9
Operating Cash Fl ow ow incl. W C
1,557
1,694
1,822
1,961
2,109
2,254
less Capex
-1,082
-1,159
-1,236
-1,313
-1,391
-1,437
Free Cash Flow Share Buyback Dividends Other Financing Financing Cash Flow Net Debt (Cash)
0
0
0
0
0
0
-1,082
-1,159
-1,236
-1,313
-1,391
-1,437
476
535
586
647
718
817
0
0
0
0
0
0
-186
-229
-271
-306
-342
-387
-81
-71
-61
-51
-41
-31
-267
-300
-332
-357
-383
-418
132
-103
-357
-647
-982
-1,381
1
1
1
1
1
231.6%
213.1%
213.1%
213.1%
213.1%
213.1%
Implied EV
11,852
11,587
12,340
13,121
13,950
14,830
Implied Equity Value
10,503
10,445
11,423
12,462
13,590
14,830
78
79
79
80
Number of Shares ROIC based value per share
134
EV/IC:ROIC/W ACC (at g =2%)
132
144
156
2.51
Implied EV
13,637
Implied Equity value
12,495
Im I mplied Equity Value per Share
158
Valuation EV/Sales
81%
74%
68%
63%
Target EV/Sales
96%
88%
82%
75%
Gearing (Net Debt/Equity)
0.0x
0.0x
-0.1x
-0.1x
-0.2x
-0.2x
EV/EBIT
11.3x
9.9x
9.0x
8.0x
Change in Net Debt (Cash)
-209
-235
-254
-290
-335
-399
Target EV/EBIT
13.5x
11.9x
10.7x
9.6x
Source: Company data, Goldman Sachs Global Investment R esearch.
1,296
6,157
759
Other Investing
19,898
5,791
Depreciation and Amortisation
Investing Cash Flow
1,173
5,438
Net incom e Operating Cash Flow
1,048
5,117
Asset Turn
Working Capital
932
Avg. Invested Capital NOPLAT Margin (%)
Cash Flow
848
P/E
15.1x
13.2x
12.3x
11.3x
Target P/E
17.8x
15.5x
14.6x
13.4x
80 169
1
81 183
December 16, 2015
Europe: Automobiles
Valeo Summary Financials Exhibit 105: Valeo financial summary
€m
2015E 2015E
2016E 2016E
2017E 2017E
2018E 2018E
2019E 2019E
2020E 2020E
€m
Revenue by division
Original Equipment Aftermarket Aftermarket Other Group
% growth
2015E 2015E
2016E 2016E
2017E 2017E
2018E 2018E
2019E 2019E
2020E 2020E
Half yearly EBIT
12,444
13,399
14,208
15,127
16,268
17,258
1H 1H
517
1,600
1,696 1,696
1,797
1,905
2,020
2,141
2H
468
Total
985
360
388
412
438
471
500
14,404
15,482
16,417
17,471
18,759
19,898
13%
7%
6%
6%
7%
6% Half yearly EBIT margin
EBITDA
1H
7.1%
2H
6.6%
Total
6.8%
Auto EBIT Walk
Comfort & Driving Assistance
Underlying EBIT previous year
Powertrain Systems
Margin, %
862
1,025
1,150
1,250
1,370
1,530
6.8%
7.1%
7.4%
7.6%
7.8%
8.2%
226
195
175
196
237
213
89
76
54
86
92
98
-191
-216
-232
-246
-262
-281
FX
54
1
0
0
0
0
Raw material cost
25
5
0
0
0
0
Depreciation
-83
-40
-40
-40
-30
-30
Labour productivity
191
216
232
246
262
281
1
0
0
0
0
0
-101
-68
-5 -57
-71
-7 -73
-8 -80
SG&A
-50
-37
-2 -28
-50
-6 -61
-5 -54
Other
1
-7
-4
-1
-5
-8
985
1,110
1,210
1,330
1,490
1,630
7.1%
7. 7.4%
7. 7.6%
7. 7.8%
8. 8.2%
8. 8.4%
Thermal Systems
Visibility System
Volume Mix
Other Valeo EBITDA
1,834
2,023
2,180
2,378
2,587
2,777
EBITDA margin
Comfort & Driving Assistance
Powertrain Systems
Pricing
Acquisitions R&D
Thermal Systems
Visibility System
Other Valeo EBITDA
12.7%
13.1%
13.3%
13.6%
13.8%
14.0%
Underlying EBIT current year
Margin, % Source: Company data, Goldman Sachs Global Investment Research., *Half yearly EBIT estimates strip out restructuring costs
December 16, 2015
Europe: Automobiles
Price target and estimate changes
December 16, 2015
Europe: Automobiles
Exhibit 107: Current share price-implied FMCC
Exhibit 108: ROIC by company (2016E)
20%
25%
16%
20%
12%
15%
8%
10%
4%
5%
0%
r i a A l S e c m e P i r a u a D F
A C F
l l a o n W t u l v e g M a e l o a B n H V e w s R k l o V
i n N t o i l n e e K o l a h G C V c i M
Implied FMCC (2016)
l a n i a r i t s k o u N d n I H N C
v i l o t u A
0%
i n t o i a a n l e c i o a e k C r o V u N a F
r i v W l a N A o i n e l l v l l o M e K S l e o h m t P i G H u B V i c a D A M 2016 ROIC
Source: Datastream, Goldman Sachs Global Investment Research
Source: Goldman Sachs Global Investment Research
Exhibit 109: Target EV/IC:ROIC/WACC EV/IC:ROIC/WACC multiples for our coverage
Exhibit 110: Target FMCC for our coverage (on 2016)*
1.6
16%
1.2
12%
0.8
8%
0.4
4%
0.0
n a i k o N
l a i r t s u d n I H N C
v i l o t u A
i t n o C
o e l a V
n i l e h c i M
a l l e H
o v l o V
t l u a n e R
a i c e r u a F
2016 EV/IC / ROIC/WACC Source: Goldman Sachs Global Investment Research
n e g a w s k l o V
A C F
r e W l M i m B a D
A S P
0%
A S P
n e g a w s k l o V
r e W A l M C m F i a B D
l o a i e r l t a s u V d n I H N C Target FMCC (on 2016) a i c e r u a F
a l l e H
o v l o V
t l u a n e R
l A t l n a i e r C u t a s F n g a u e w d R s n k I l o H V N C
i n t i l n e o h C c i M
v i l o t u A
n a i k o N
*Target FMCC = EV/IC:ROIC/FMCC * FMCC; Source: Datastream, Goldman Sachs Global Investment Research
December 16, 2015
Europe: Automobiles
Estimate changes and key risks to our price targets Exhibit 111: Changes to earnings estimates and 12-month price targets Share prices as of December 11, 2015 Price Target Estimate changes
Sh S hare Price
Rating U/D
Old
New
PT period Old
New
EPS ccy
GS EPS (old) 2015E
2016E
2017E
GS EPS (new) 2018E
GS EPS (change)
2015E
2016E
2017E
2018E
2015E
2016E
2017E
2018E
OEMs
BMW
€
94 94.11
77
95
1%
Sell
Sell
12 months
€
8.68
9.09
9.54
9.21
9.51
10.05
10 10.79
11 11.21
10%
11%
13%
22%
Daimler
€
74 74.63
86
87
17%
Buy
Buy
12 months
€
8.48
9.21
9.65
9.21
8.51
8.90
9.38
9.82
0%
-3%
-3%
7%
FCA
€
12 12.48
15.9
18.0
44%
Buy*
Buy*
12 months
€
1.13
1.70
2.54
2.43
1.22
1.37
2.37
2.49
8%
-20%
-7%
2%
FCA (US)
$
13.60
17.7
19.6
44%
Buy*
Buy*
12 months
Peugeot
€
15 15.80
17.8
18.8
19%
Buy
Buy
12 months
€
2.16
2.05
2.27
2.35
2.12
2.13
2.21
2.31
-2%
4%
-3%
-2%
Porsche
€
48 4 8.66
36
47
-3%
Sell
Sell
12 months
€
9.92
10.71
12.50
12.42
5.74
8.19
9.45
10.45
-42%
-24%
-24%
-16%
Renault
€
87.84
82
97
10%
Neutral
Neutral
12 12 months
€
11.20
11.42
12.55
12.69
11.45
11.66
13.02
13.39
2%
2%
4%
6%
Volkswagen
€
12 128.55
100
129
0%
Sell
Sell
12 months
€
8.78
20.31
23.55
24.81
12.12
18.47
20.84
22.74
38%
-9%
-11%
-8%
Suppliers
Autoliv
$
122.80 122.80
119
130
6%
Neutral Neutral
Neutral Neutral
12 months months
$
5.27
7.20
8.44
9.09
5.21
7.26
8.24
8.99
-1%
1%
-2%
-1%
Continental
€
21 214.20
244
260
21%
Buy*
Buy*
12 months
€
14.31
16.06
17.60
19.03
14.32
15.92
17.14
18.45
0%
-1%
-3%
-3%
Faurecia
€
33 33.53
36.5
GKN
p
284.30
41.7
24%
Buy
Buy
12 months
€
2.90
3.55
4.08
4.47
2.95
3.63
4.04
4.45
2%
2%
-1%
0%
327.0
15%
Not Rated
Buy
12 months
£
22.15
24.75
27.74
29.82
21.35
21.90
25.65
28.10
-4%
-11%
-8%
-6%
Hella
€
36 36.36
37.3
42.9
18%
Neutral
Buy
12 months
€
2.70
2.45
3.34
3.72
2.70
2.48
3.28
3.72
0%
2%
-2%
0%
Michelin
€
86 8 6.84
98
94
8%
Neutral
Neutral
12 12 months
€
7.51
8.46
9.11
9.99
6.32
8.20
8.76
9.25
-16%
-3%
-4%
-7%
Nokian
€
32 3 2.86
33.6
36.2
10%
Neutral
Neutral
12 12 months
€
2.27
1.84
2.13
2.29
1.66
1.86
2.14
2.26
-27%
1%
1%
-1%
Valeo
€
134.10
150
158
18%
Buy
Buy
12 months
€
8.80
10.46
11.77
12.78
8.89
10.19
10.88
11.82
1%
-3%
-8%
-8%
$
0.16
0.54
0.68
0.82
0.16
0.44
0.57
0.72
0%
-18%
-16%
-13%
Skr
6.93
7.15
8.21
9.16
6.95
6.45
7.49
8.43
0%
-10%
-9%
-8%
Trucks
CNH Industrial
€
6.50
6.5
7.3
12%
Neutral
Neutral
12 12 months
CNH Industrial (US)
$
7.06
7.2
8.0
13%
Neutral
Neutral
12 months
Skr
76.90
93
84
9%
Neutral
Neutral
12 12 months
Volvo
* denotes Conviction List. Source: Goldman Sachs Global Investment Research, FactSet.
December 16, 2015
Europe: Automobiles
Valuation multiples Exhibit 114: GS autos valuation multiples On current price 2016E
EV/Sales 2017E
2018E
2016E
EV/EBIT 2017E
2018E
2016E
P/E 2017E
2018E
OEMs
39%
36%
34%
6.1x
5.1x
4.6x
8.1x
7.0x
BMW Daimler FCA PSA Renault VW
60% 46% 22% 18% 50% 38%
59% 45% 19% 15% 46% 34%
57% 43% 17% 14% 43% 30%
5.9x 5.1x 4.9x 3.6x 9.7x 7.3x
5.4x 4. 7x 3.6x 2.9x 8.2x 5.8x
5.0x 4.4x 3.2x 2.6x 7.7x 4.6x
9.4x 8.4x 9.1x 7.4x 7.5x 7.0x
109% 112% 116% 25% 91% 62% 100% 296% 74%
103% 106% 107% 23% 85% 57% 95% 282% 68%
97% 103% 98% 21% 80% 52% 91% 269% 63%
9.7x 11.7x 10.0x 5.3x 12.2x 7.9x 8.1x 12.8x 9.9x
8.8x 10.7x 9. 1x 4.7x 10.3x 6. 8x 7. 6x 11. 8x 9.0x
8.1x 10.4x 8.2x 4.1x 9.3x 6.1x 7.1x 11.2x 8.0x
13.1x 16.9x 13.5x 9.2x 13.0x 11.1x 10.6x 17.7x 13.2x
Suppliers Autoliv Continental Faurecia GKN Hella Michelin Nokian Valeo
Sales
2015-18E CAGR EBIT
EPS
6.7x
2%
6%
11%
8.7x 8.0x 5.3x 7.2x 6.7x 6.2x
8.4x 7.6x 5.0x 6.8x 6.6x 5.7x
0% 2% 4% 1% 6% 6% 1%
4% 4% 11% 5% 10% 4%
6% 5% 27% 3% 5% 23%
11. 8x 14.9x 12.5x 8.3x 11.1x 9.8x 9.9x 15.3x 12.3x
10.9x 13.7x 11.6x 7.5x 10.1x 9.1x 9.4x 14.5x 11.3x
5% 8% 6% 4% 5% 5% 2% 6% 7%
10% 17% 7% 9% 10% 16% 3% 9% 10%
13% 20% 9% 15% 10% 17% 14% 11% 10%
Trucks
59%
55%
50%
9.3x
8.0x
6.7x
13.3x
10.8x
9.1x
2%
11%
35%
CNH Industrial Volvo
56% 61%
54% 56%
50% 50%
9.2x 9.4x
8. 1x 7.8x
6.9x 6.6x
14.7x 11.9x
11.4x 10.3x
9.1x 9.1x
2% 2%
9% 12%
64% 7%
Median
59%
55%
50%
9.3x
8.0x
6.7x
13.1x
10. 8x
9.1x
2%
10%
13%
On target price EV/Sales
EV/EBIT
P/E
2015-18E CAGR
2016E
2017E
2018E
2016E
2017E
2018E
2016E
2017E
2018E
OEMs
45%
42%
39%
7.0x
5.9x
5.4x
9.4x
8.0x
BMW Daimler FCA PSA Renault VW
62% 55% 29% 25% 57% 39%
61% 54% 26% 22% 53% 34%
59% 53% 23% 21% 49% 30%
6.1x 6.2x 6.5x 5.0x 11.1x 7.4x
5.6x 5. 7x 4.9x 4.2x 9. 4x 5.8x
5.2x 5.4x 4.4x 3.9x 8.8x 4.7x
9.4x 9.8x 13.2x 8.9x 8.3x 7.0x
124% 117% 140% 32% 102% 74% 107% 334% 88%
117% 111% 129% 30% 96% 68% 102% 318% 82%
110% 108% 119% 28% 90% 62% 97% 303% 75%
11.1x 12.2x 12.0x 6.8x 13.7x 9.4x 8.7x 14.4x 11.9x
10.0x 11.2x 11. 0x 6.2x 11.6x 8. 2x 8.2x 13. 4x 10. 7x
9.3x 10.8x 10.0x 5.5x 10.5x 7.3x 7.7x 12.6x 9.6x
CNH Industrial Volvo
61% 61% 62%
57% 58% 57%
53% 54% 51%
9.8x 10.0x 9.5x
8.4x 8. 8x 7.9x
Median
61%
57%
53%
9 8x
8 4x
Suppliers Autoliv Continental Faurecia GKN Hella Michelin Nokian Valeo Trucks
Sales
EBIT
EPS
7.6x
2%
6%
11%
8.8x 9.3x 7.6x 8.5x 7.4x 6.2x
8.5x 8.9x 7.2x 8.2x 7.2x 5.7x
0% 2% 4% 1% 6% 6% 1%
4% 4% 11% 5% 10% 4%
6% 5% 27% 3% 5% 23%
15.0x 18.0x 16.3x 11.5x 14.9x 13.0x 11.4x 19.5x 15.5x
13. 5x 15.8x 15.2x 10.3x 12.8x 11.5x 10.7x 16.9x 14.6x
12.5x 14.5x 14.1x 9.4x 11.6x 10.7x 10.1x 16.0x 13.4x
5% 8% 6% 4% 5% 5% 2% 6% 7%
10% 17% 7% 9% 10% 16% 3% 9% 10%
14% 20% 9% 15% 10% 17% 14% 11% 10%
7.1x 7.5x 6.7x
15.6x 18.1x 13.0x
12. 6x 14.0x 11.2x
10.6x 11.2x 10.0x
2% 2% 2%
11%
9% 12%
35% 64% 7%
7 1x
15 0x
12 6x
10 6x
2%
10%
14%
December 16, 2015
Europe: Automobiles
GS versus consensus Exhibit 115: Our estimates versus Reuters consensus Revenue 2016
Cons
GS e
EBIT 20 1 7
% diff
Cons
GSe
EPS
2016
% diff
Cons
GSe
2017
% diff
Cons
GS e
2 016
% diff
Cons
GSe
2017
% diff
Cons
GSe
% diff
OEMs
BMW Daimler F CA PSA Renault VW
93,969 152,570 116,702 57,425 47,662 212,834
94,100 152,502 117,461 55,715 4 48 8,505 209,078
0% 0% 1% -3% 2% -2%
97 97,524 159,176 122,971 58,987 50 50,239 219,405
93,720 152,440 126,282 56,935 5 51 1,611 218,094
-4% -4% 3% -3% 3% -1%
9,641 14,223 5,592 2,641 2,650 8,651
9,665 13 1 3,716 5,316 2,771 2,500 10,900
0% -4% -5 % 5% -6% 26%
10 10,098 14 1 4,883 6,359 2,812 3,003 11,843
10 10,308 14 1 4,447 6,761 3,017 2,900 12,849
2% -3% 6% 7% -3% 9%
9.66 8.80 1.46 1.76 11.99 11.55
10.05 8.90 1.37 2.13 11.66 18.47
4% 1% -7% 21% -3% 60%
10.18 9.21 1.95 1.97 13.77 21.90
10.79 9.38 2.37 2.21 13.02 20.84
6% 2% 21% 12% -5% -5%
9,935 41,399 21,638 8,117 6,658 21,651 1,390 15,460
10,365 41,575 21,739 8,322 6, 6 ,830 21,262 1, 1 ,394 1 15 5,482
4% 0% 0% 3% 3% -2% 0% 0%
10,551 43 43,564 22,413 8,425 7,024 22 22,501 1,483 16 16,596
10,949 43 43,665 22,397 8,660 7, 7 ,171 21 21,871 1,482 1 16 6,417
4% 0% 0% 3% 2% -3% 0% -1%
983 4,775 962 686 519 2,638 311 1,166
989 4,850 1,025 730 534 2,600 323 1,150
1% 2% 6% 6% 3% -1% 4% -1%
1,061 5,085 1,024 762 554 2,792 341 1,290
1,084 5,150 1,090 806 598 2,730 353 1,250
2% 1% 7% 6% 8% -2% 4% -3%
7.29 15.65 3.41 28.08 3.35 8.48 1.77 10.16
7.26 15.92 3.63 28.17 3.28 8.20 1.86 10.19
0% 2% 6% 0% -2% -3% 5% 0%
8.08 16.88 3.77 30.65 3.64 9.24 1.97 11.26
8.24 17.14 4.04 31.65 3.72 8.76 2.14 10.88
2% 2% 7% 3% 2% -5% 9% -3%
26,341 313,153
25,601 303,888
-3% -3%
26,915 324,788
26,481 315,569
-2% -3%
1,712 21,852
1,562 19 1 9,788
-9% -9%
2,020 24 2 4,306
1,746 2 2,658
-14% -7%
0.45 7.18
0.44 6.45
-2% -10%
0.53 8.29
0.57 7.49
7% -10%
Suppliers
Autoliv Conti Faurecia GKN Hella Michelin Nokian Valeo Trucks
CNHi Volvo
Note GKN numbers above stated are as per company definition (rather than GS) to enable comparison with consensus. Hella (May 31 year-end) 2016/17 numbers relate to FY17 and FY18 Source: Datastream, Goldman Sachs Global Investment Research
December 16, 2015
Europe: Automobiles
Dividend and FCF yield We see an average 2016E dividend yield of 2.7% in European autos, with suppliers (2.8%) having relatively lower dividend yield than the OEMs (ex-PSA/FCA) at 3.6%) on average. We see an average FCF yield of 5.3% across our coverage, with an average of 5.8% across the OEMs and 4.6% across the suppliers.
The only company with negative 2016E FCF yield is VW, due to a -€6.7 bn cash outflow related to Dieselgate. Daimler has the highest dividend yield and third highest FCF yield in our coverage at 5. 4% and 7.2%, a key part of our buy thesis – through strong capital discipline, Daimler has surprised positively on cash generation, and we expect the company to generate an average €6.2 bn over 2016-18E, comfortably supporting the average annual €4.6 bn dividend payments over the period. Exhibit 116: Dividend yield by company (2016E)
Exhibit 117: FCF yield by company (2016E)
10%
6% 5%
8%
4% 6% 3% 4%
2%
2%
1% 0%
r n e i l a m k i o a N D
i l N H n o W t o i l v u K e e l N l o M a a h V G n C B V c e i R M
v i l o t u A
2016E dividend yield
Source: Company data, Goldman Sachs Global Investment Research.
a i c e r u a F
i t a W A l n l o e V S P C H
A C F
0%
-2%
A S P
o v l o V
r a e A W N i l c C M K e m F B G r i a u a D F
i t t l n u o a C n e R
i n H o i l e l e a h N C V c i M
2016E FCF yield (pre-div) Source: Company data, Goldman Sachs Global Investment Research.
v i l o t u A
a W n l a l i e V k H o N
December 16, 2015
Europe: Automobiles
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