Exane BNP Paribas revises its recommendation on Valeo to "neutral" against "outperformance" with a target of a 25% reduction in the price to 41 euros. It downgraded Faurecia to "underperformance" against "neutral" and lowered its share price target by 34% to 45 euros.
 
At 11:43 am, Valeo's share price fell by 4.51% to 33.21 euros, after hitting a low of 33.12 euros since December 2014. The equipment manufacturer Faurecia dropped 5.91% to €48.91. At the same time, the SBF 120 index lost 0.93%.
 
In a sector note entitled "Challenging the myth of the supplier", Exane BNP Paribas analysts seek to demonstrate why the historical valuation premium of automotive suppliers on automakers is unjustified.
 
To support their thesis, they rely on 30 years of history and 30 automotive values.
 
According to analysts, the organic growth recorded by OEMs was no higher than that of car manufacturers and is mainly due to global production of light vehicles and trends in the product mix.
 
"We have no evidence of an intrinsic history that could explain the performance of organic growth," analysts say.
 
Over the past 25 years, the operating results of automakers and automotive suppliers have been essentially the same, with a correlation of 94% according to Exane.
 
"It is therefore difficult to understand why the consensus is based on an operating income growth of 22% for OEMs in 2018-2020 and only 5% for automakers over the same period," Exane's analysts ask themselves.
 
They add that OEMs are by nature more cyclical in nature than automakers. While analysts expect zero growth in global automotive production in 2019-2020, OEM margins are expected to be more severely impacted.
 
The historical valuation premium of the latter, twice that of the manufacturers, then appears unjustified in the eyes of the intermediary.
 
"The erosion of this premium may well be the most powerful intra-industry investment issue of the coming years," analysts say.
 
"If - as has been the case in the past - this premium were to disappear completely during the next slowdown, OEMs would underperform automakers by about 50%."
 
Exane BNP Paribas has reduced its earnings per share forecasts by 4% for Faurecia in 2019 and by 21% in 2020. As far as Valeo is concerned, the intermediary is reducing its earnings per share forecasts by 5% in 2019 and 20% in 2020.
 
Analysts also lower their advice on Continental to "underperformance" (-3.93% in Frankfurt) and on Schaeffler to "neutral" (-2.34)%.
 
On the other hand, they raised their recommendation to "neutral" against "underperformance" on Daimler, which took 0.86%.
 
The Stoxx automotive index fell by 0.79%, one of the largest sectoral declines in Europe.