(News Bulletin 247) – The automotive equipment manufacturer’s shares took off this Friday after the company delivered an operating margin increase in the first half. A good start to the year, according to Oddo BHF, which will however have to be confirmed.

It’s not a good time to be an automotive supplier on the stock market in recent quarters. The sector has taken a hit, undermined by fears about electrification, which risks weighing on their margins, and competition from Chinese players.

Again on Thursday, Stellantis CEO Carlos Tavares said that European equipment manufacturers will have no choice but to get closer to the competitiveness of their Chinese competitors. “Do you think that Chinese manufacturers (who recently arrived in Europe, Editor’s note) will take European suppliers if their competitiveness is far from what they have locally?” he asked journalists.

For the time being, however, French equipment manufacturers are experiencing mixed fortunes in this half-year results season. Opmobility (formerly Plastic Omnium) saw its share price jump by 9.4% after the publication of its accounts on Tuesday, while Forvia fell by 1% on Wednesday.

Valeo, for its part, reassures the market. Its shares climbed 8.7% at the end of the afternoon this Friday, marking one of the biggest increases in the SBF 120. Despite this progression, the stock remains down 26% over the whole of 2024, and its market capitalization barely exceeds 2.5 billion euros. And to think that the company was still in the CAC 40 in 2018….

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A “brain” division that works

In the first half, Valeo’s revenues stood at 11.12 billion euros, down 1% but up 1% on a comparable basis.

The equipment manufacturer was driven by the good performance of its “brain” division, i.e. driver assistance systems, which recorded growth of 6% in comparable data. The “power” division (propulsion systems and thermal systems) suffered a decline of 5% on the same basis, while “light” (lighting) increased its revenues by 2%.

Above all, the operating margin increased by 23%. In relation to turnover, it reached 4% in the first half, against 3.2% a year earlier, supported by the efforts on costs undertaken by the company and the improvement in the profitability of its contracts. According to Stifel, the consensus expected an operating margin rate of only 3.6%.

Net profit increased by 18% to 141 million euros. Cash generation returned to the green, to 121 million euros, against a disbursement of 156 million euros over the first six months of 2023. This cash flow exceeded the consensus by 74%, notes Stifel.

“Weaknesses” that remain

Regarding its outlook, Valeo has adjusted downward its sales forecasts for both 2024 and 2025. For this year, the company anticipates revenues of around 22 billion euros, compared to 22.5 billion to 23.5 billion previously. For 2025, the group is counting on a figure ranging from 23.5 billion euros to 24.5 billion euros, compared to a range of 24.5 billion to 25.5 billion previously.

Valeo, on the other hand, confirmed its targets for gross operating profit, operating margin and free cash flow for 2024 and 2025.

“The first half results are better than expected, although mitigated by the erosion of the sales outlook, which could be enough to relieve the market in the short term after the significant losses of the stock recorded recently,” Stifel said.

Oddo BHF, for its part, appreciates an “encouraging start to the year that will need to be confirmed”. The company has “taken a step in the right direction” but with “still weaknesses”, the research office continues.

“The fact that Valeo is not reducing its debt (no reduction in debt between 2022 and 2024, according to expectations) and still has to decide between financial performance and growth (…) still raises questions about the reality of its positioning despite its exposure to ‘attractive’ sectors such as ADAS (driving assistance systems, editor’s note), points out Oddo BHF.