'Stars better aligned' for auto suppliers - Jefferies

Schaeffler AG

26/05/2023 11:36

** As operating environment is turning supportive for auto
suppliers and the post-COVID downward earning cycle appears to
be coming to an end, Jefferies sees "starts better aligned" for
the sector
    ** The broker is not expecting a classical auto recession
with both price and volume collapsing, despite the fact that car
sales for the last three years in the U.S. and Europe have been
about 20% below pre-COVID averages 
    ** Instead, it sees any net price adjustment on new cars
from original equipment manufacturers (OEMs) to provide some
support for pent-up demand, making suppliers better
beneficiaries of auto volume recovery
    ** Better than expected production could offset cost
inflation, inventory re-stocking should further support
production outlook, and easing of supply chain constraints will
improve production efficiency, it says
    ** The brokerage double upgrades Faurecia  EPED.PA  and
Valeo  VLOF.PA  to "buy" from "underperform"
    ** Regarding Faurecia, it highlights high operating leverage
and expected balance sheet improvement after completion of the
planned 700 euro million disposals
    ** On Valeo it expects margin to accelerate from H2 and sees
upside to the company's sales target of EUR 2 bln/EUR 4 bln by
2025/2030
    ** Jefferies continues to like Autoliv  ALV.N , Michelin
 MICP.PA  (both "buy"-rated), and keeps "hold" on Continental
 CONG.DE , Vitesco  VTSCn.DE , Schaeffler  SHA_p.DE 

 (Reporting by Marta Frackowiak)
 ((marta.frackowiak@thomsonreuters.com))