(News Bulletin 247) – The automotive supplier has lowered its objectives for 2024, citing in particular uncertainties linked to electrification and regulation. But the market expected worse.

Pass a warning on results and progress on the stock market. This is a priori difficult if not impossible. But it can happen.

The automotive supplier Forvia is demonstrating this this Friday. The former subsidiary of Peugeot SA lowered its outlook for 2024, and, yet, its action took off by 9.7% around 3:30 p.m.

Manhandled for several quarters by a market which has scrapped the automotive sector and equipment manufacturers in particular, Forvia has lowered several targets.

The group is targeting 26.8 billion euros to 27.2 billion euros in sales for 2024, compared to 27.5 billion to 28.5 billion euros previously, an operating margin of 5% to 5.3%, compared to a figure located “at the lower end” of a range of 5.6% to 6.4% previously, and a net cash flow of at least 550 million euros compared to at least 649 million euros previously.

>> Access our exclusive graphic analyses, and gain insight into the Trading Portfolio

Regulatory uncertainties

Furthermore, the company indicated that it anticipates a debt leverage ratio (net debt compared to adjusted gross operating income) of a maximum of 2 at the end of 2024, compared to a maximum of 1.9 previously. The company, however, kept its debt target unchanged at the end of 2025 at less than 1.5.

Forvia cites several elements to justify this lowering of prospects, in particular “greater caution” on end-of-year sales.

The equipment manufacturer mentions the uncertainties linked to “the continued slowdown in electrification” and the concerns due to the implementation of the European CAFE (“Corporate average fuel economy”) regulation.

This regulation requires car manufacturers in Europe to reduce, on average, their Co2 emissions to 95 grams per kilometer. “Which would represent a drop of 15% compared to 2021 and would require a sharp increase in sales of electric vehicles which is far from being obvious today despite future progress on the offer,” explained last week to BFM Stock market Michael Foundoukidis, analyst at Oddo BHF.

Forvia also mentions “high inventory levels in North America” ​​which are leading to announcements of factory closures and reductions in production forecasts for the second half, as well as increasing risks of strikes.

In addition, the equipment manufacturer is penalized by delays in production, particularly in China, as well as by unfavorable exchange rate effects, with an impact of 500 million euros estimated in the second half.

Faced with this deteriorating environment, Forvia announced the launch of a “West to East” initiative intended to strengthen its relations with Chinese manufacturers, as well as the acceleration of the “EU-Forward” plan.

This plan provides for 10,000 job cuts over the next five years with savings of 500 million euros expected. The group specified this Friday that 90% of the planned reductions could be effective by 2027. A positive impact of this plan of around 180 million euros is anticipated in 2025.

A confirmed debt reduction objective

The company has also revised its objective of cost synergies drawn from the integration of the German Hella (bought in 2022 by Faurecia, which gave birth to Forvia) to 400 million euros for a full year in 2025, against 350 million euros previously.

Ultimately, all of these announcements are well received by the market. “Given the fall in the price (-53% since the start of the year), and the warnings on sector results in recent weeks, a lot of things were already integrated into the share price. In the end, the reduction outlook is not as violent as the ‘bears’ (investors who bet on the stock’s decline) feared,” explains an analyst.

“The market is currently in an upward phase anyway. Furthermore, Forvia has not announced a capital increase, which can be reassuring,” he continues.

Bernstein draws a rather similar observation. “With successive warnings from a number of its manufacturer clients, whether explicit lowering of forecasts for the second half of 2024 or general comments on difficult industry conditions, confirmed “With S&P’s successive reductions in their global auto production forecasts, it was only a matter of time before OEMs such as Forvia had to recalibrate their own expectations,” explains the research firm.

However, Bernstein believes that the announcement is not so catastrophic. The note from the financial intermediary is also entitled “so it wasn’t so bad, was it?”.

As the company is indebted, “confirmation that its key deleveraging target of a net debt to adjusted Ebitda ratio below 1.5 at the end of 2025 remains unchanged, supported by the ongoing divestment program , was a very reassuring point,” adds the design office.