Citi sees challenging outlook for European auto suppliers
02/04/2025 11:00
** Citi says outlook for European auto suppliers is challenging amid tariff-related volume uncertainty, rising Chinese competition and net pricing concerns, though these risks might be offset by sector consolidation and self-help measures
** Citi says self-help measures may be a drag on FCF for a few years, but expects savings to be more obvious in 2025-27
** Low valuations might result in M&A, it adds
** Citi prefers tyre makers to car parts suppliers as the former have more stable volumes, structural mix benefits and cleaner balance sheets
** It likes Continental CONG.DE ("buy") for its self-help ability, the upcoming spin-off of its automotive division and highly cash generative tyre business
** It also sees H2 recovery for Michelin MICP.PA and re-rating potential for Pirelli PIRC.MI (both "buy")
** It cuts German rolling element bearings maker Schaeffler SHA0.DE to "neutral" from "buy", as investments in the transition to electrification will likely take time to pay off
** It downgrades French parts supplier Forvia FRVIA.PA to "sell" from "buy" citing balance sheet and disposal risks
(Reporting by Simon Ferdinand Eibach)
((Simonferdinand.eibach@thomsonreuters.com))