PARIS Aug 13 (Reuters) - PSA Peugeot Citroen, the French carmaker whose spiralling losses led to a government-backed bailout earlier this year, may already be close to an important recovery milestone: a return to the benchmark CAC-40 index.
Peugeot was excluded from the CAC-40 in 2012, for the first time in the history of the index, as Europe's no.2 carmaker slipped lower in market value and came close to foundering amid a prolonged European car sales slump.
But the stock has rallied since a 3 billion euro ($4 billion) share sale to the French state and China's Dongfeng Motor Group. A quarterly membership review of the French blue-chip index is expected within weeks.
"Peugeot is the closest add candidate," analysts at Societe Generale said in a note this week.
While the CAC-40 is down 3.1 percent so far this year, Peugeot shares have surged 48 percent - twice the gain by CAC-40 index leader Orange, and making it the strongest performance in the broader European auto sector.
Exchange operator Euronext, whose indices committee is expected to meet by Sept. 5, did not respond to requests for comment. Precise meeting dates are kept secret to discourage any attempt at market manipulation.
Decisions on CAC-40 membership are based on the size of a company's free-floating market capitalisation and trading volumes. Among eligible stocks, Peugeot currently ranks 46th on size and 20th in liquidity terms.
Peugeot last month reported a surprise surge in first-half cash flow as new Chief Executive Carlos Tavares cut stocks of parts and unsold vehicles to free up working capital, while maintaining tight pricing discipline.
CAC-40 re-entry could extend Peugeot's share rally because it would trigger automatic buying on behalf of exchange-traded and tracker funds. It would further increase liquidity and put the carmaker firmly back on the radar for foreign investors.
Beyond the technical repercussions, it would also send another powerful comeback signal to Peugeot's customers, staff and competitors - as well as broader French industry.
"Peugeot's potential re-entry would reflect the French economic landscape," said John Plassard, deputy director of Swiss brokerage Mirabaud Securities. He cited ongoing efforts by Peugeot and Renault to cut costs and improve competitiveness.
To make the cut in this review round, however, Peugeot would also need to beat out a current member of the CAC-40.
The most likely victim, Veolia Environnement, is unlikely to get ejected this time, according to Societe Generale calculations that suggest Peugeot may have to wait three months for its next opportunity.
While Peugeot's volumes are strong, the stock still falls slightly short on free-floating capitalisation, Christophe Wakim of Exane BNP Paribas agreed.
"I'd be surprised to see it come back in September," he said.
(1 US dollar = 0.7484 euro) (Additional reporting by Blaise Robinson; Editing by Andrew Callus)