(News Bulletin 247) – German bank Berenberg went from buying to holding on the automobile group this Tuesday. She judges that the market is now well aware of the group’s virtues.

The biggest increase in the CAC 40 and the SBF 120 last year, Stellantis has once again had a thunderous start to 2024, gaining more than 26% since January 1.

The group led by Carlos Tavares once again demonstrated the strength of its operations. At a time when the market has abhorred the electric vehicle, Stellantis recalled to what extent the company generates cash (nearly 13 billion euros of industrial cash flow in 2023) and margins (current operating profitability close to 13%) and profits (18.6 billion euros).

Berenberg, however, judges that it is time to take “a breath” on the value and has lowered his opinion to “hold” against “buy” previously, with a price target of 29 euros.

This weighs on the stock, with Stellantis shares falling 1.8% around 4:20 p.m., the most pronounced drop in the CAC 40.

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Margins under pressure in North America

“We continue to consider Stellantis’ commitment to maintaining double-digit margins over the next decade as very credible”, while the group will still benefit from the synergies resulting from the merger between PSA and Fiat Chrysler (which gave birth to to Stellantis in January 2021) and its cost advantages, notes Berenberg. “In addition, Stellantis’ proven ability to produce cost-effective cars on multi-energy and highly modular platforms remains a key advantage in a likely bumpy transition to electric vehicles,” she continues.

However, the Stellantis share price has doubled since Berenberg began its coverage in May 2022. The German bank therefore fears that the “potential for a good surprise” in 2024 will be limited.

Especially since margins in North America, a region which represents 55% of the company’s operating profits, could find themselves somewhat under pressure due to labor costs, a more delicate pricing environment and of an unfavorable situation on stocks, lists the German bank.

Impact on costs

The group has benefited in particular from the very profitable pick-up segment, but the price trend seems about to turn around, notes Berenberg. The financial intermediary notes that RAM brand dealerships (one of the Stellantis brands) display steeper discounts than competitors Chevrolet, GMC and Ford. “This situation could last for some time given the still relatively high inventory levels (92 days of supply in February for the RAM brand, compared to 121 in September, but above the market average, which is 70 days )”, judge Berenberg.

“This situation could add to significant pressure on labor costs. We also believe that the new labor contract signed with the UAW (the major auto union) last year will reduce the group’s margins of around 50 basis points (0.5% Editor’s note) on a gross basis”, continues the establishment.

In addition, the support provided by potential share buybacks is now fully integrated by the market, judges Berenberg. If the valuation still remains relatively attractive, “catalysts are necessary to continue the improvement in stock market multiples”, adds the German bank which therefore does not see any in the short term.