| PARIS, April 11
PARIS, April 11 PSA Peugeot Citroen's
prospects may be brightening as Europe emerges from a six-year
market slump, but new boss Carlos Tavares still faces long odds
as he prepares to present his recovery plan on Monday, analysts
Among European automakers, Peugeot arguably has the most to
gain from a demand recovery underway in the region, where it
still sells almost 60 percent of its global production.
But unlike domestic rival Renault, where Tavares
previously served as chief operating officer, Peugeot and
Citroen lack budget models to tap a boom in low-cost cars and
are struggling to lift pricing on their core range.
"Shareholders do need to ask themselves whether this
transition can be successful," said Arndt Ellinghorst, an autos
specialist at brokerage International Strategy and Investment.
"So far PSA has been a great way to play the market recovery
in Europe," Ellinghorst said in a note. "But for more material
upside to the share price we need to see evidence of PSA's DNA
After losing more than 7.3 billion euros ($10.1 billion) in
two years, Peugeot struck a rescue deal in February to sell 14
percent stakes to the French government and China's Dongfeng
Motor Group as part of a 3 billion euro cash infusion.
The capital increase includes a rights issue of new shares
open to existing shareholders and will be supplemented by the
sale of warrants - redeemable for stock later on - to raise an
additional 770 million euros.
Tavares gave an preliminary outline of his "Back in the
Race" plan at the time, saying he saw "huge room for
improvement" to the Paris-based company's cost base and new
Peugeot plans to leverage its expanded joint venture with
Dongfeng to target 1.5 million sales in China by 2020, establish
a new research centre and launch exports around southeast Asia.
The company will tighten its working capital - cutting
costly inventories of materials, parts and unsold vehicles - and
wring savings from suppliers, Tavares said.
It will also trim the number of models offered in each
market to concentrate its sales firepower on a simpler lineup.
Buoyed by the deal in prospect, Peugeot shares have surged
48 percent so far this year to close at 13.69 euros on Friday,
valuing the carmaker at 4.96 billion euros. That compares with
an 8 percent gain by the broader STOXX Europe 600 autos & parts
But a slowdown in model launches - also reflecting sharp
cuts in development spending - could make it harder to recover
business lost to rivals such as Volkswagen.
"Development has suffered," Barclays analyst Kristina Church
said. "So we wonder what Tavares can bring to the table to
follow up on current successes like the Peugeot 308."
New models like the 308 compact and 2008 mini-sport utility
vehicle (SUV) helped the group deliver a 5.2 percent European
sales increase in January through February and beat the French
domestic market with an 8.5 percent first-quarter gain.
"PSA's market share has been progressing well year-to-date,"
said Rabih Freiha, a Paris-based analyst with brokerage Exane
"But its zero-VAT ads are still on the front pages," Freiha
added in note, referring to heavily discounted offers in which
the carmaker effectively covers its customers' sales tax.
Anecdotal signs of pricing strains are borne out by industry
data for Europe's top five markets, seen by Reuters.
Citroen retail incentives rose 11 percent year-on-year to an
industry-topping 3,774 euros per vehicle in the first quarter,
according to one independent market research firm.
The Peugeot brand's discounts advanced 3 percent to 3,020
euros, compared with a market average of 2,749 euros across
Germany, Britain, France, Italy and Spain.
The group's entry-level Citroen C-Elysee and Peugeot 301 are
both unprofitable, Tavares has acknowledged, but there are no
immediate plans to develop new lower-cost models.
Peugeot's uncompetitive plants and vehicle architectures are
also inflicting losses in Latin America and Russia, compounded
by an onslaught of cheaper rival Asian products and a weakening
of the rouble, peso and real against the euro.
Tavares has pledged to increase local parts sourcing in
those markets as part of a drive to halt the company's negative
cash flow by 2016.
But investors being asked to subscribe to the upcoming share
issue will expect firmer goals from Tavares on Monday, UBS
analyst David Lesne said.
"PSA can no longer afford to give only cash guidance," Lesne
said. "Management should commit to a profitability target for
the auto division."
($1 = 0.7204 Euros)
(Editing by David Holmes)