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January 9, 2013 3:31 pm
Bottom-fishing is a dicey pursuit. Still, late last year, some investors decided that Peugeot – ranking 495th for 2012 performance in the Bloomberg European 500 – was worth a punt. The French carmaker’s wrecked share price rose 45 per cent in five weeks to early January. But it dipped initially on Wednesday when the group revealed a 9 per cent fall in assembled vehicle sales last year, with a 15 per cent drop in Europe only partially offset by growth elsewhere. Admittedly, this was no worse than the market expected. Moreover, Peugeot’s forecast for further European market contraction of 3-5 per cent in 2013 was a tad less gloomy than some recent predictions. But 2012’s sales figures were still a sharp reminder of the long, long road stretching ahead.
Peugeot’s key challenge is to manage strains on its balance sheet long enough to allow the benefits of cost-cutting, and eventual European demand recovery, to kick in. The auto operating losses were €660m in 2012’s first half; in spite of substantial cost savings, the dismal European environment suggests they could be similar in the second. Company guidance is for net debt in the industrial business to end 2012 at about €3bn, 50 per cent higher than the group’s market capitalisation. Cash burn in 2012 may have topped €200m a month. This year lower capital expenditures will help, and operating losses will, hopefully, edge down. Even so, a targeted halving of the cash burn may be ambitious: consensus forecasts suggest net debt could top €4bn by the end of 2013.
There are some positives: models are being renewed at a respectable rate, Latin American problems are receding and the approval process for the government-backed Banque PSA refinancing seems on track. Nevertheless, an end-2014 target date for break-even operational free cash flow looks a long way off. Even bottom-fishers don’t need to rush.
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