20160626-高盛-Taking_stock_post_Brexit_FCA_off_the_Conviction_List_still_a_Buy；CNHi_remains_our_top_pick_20页_310kb

Europe: Automobiles Summary

Core Content

This document provides an equity research analysis of the European automobile sector, focusing on the impact of Brexit, revised economic forecasts, and updated valuation assumptions. It outlines the firm's current ratings, price targets, and investment theses for key companies in the sector.

Main Points

Brexit Impact and Economic Outlook

• The firm reflects a less favorable GDP outlook in its forecasts, indicating a peak in UK car sales and the end of the European growth cycle.
• UK car sales volume growth forecasts are revised to 2% / -6% / -4.5% for 2016-2018, from 2% / -4% / -2.5%.
• Western European growth is adjusted to 4.4% / 0.2% / -0.4% for 2016-2018, from 4.5% / 1.5% / 0.5%.
• The firm notes that the European market is now in a slower growth phase, affecting both passenger car and truck sales.

FX Impact

• The firm marks to market FX, with GBP depreciation affecting estimates.
• The overall impact on auto EBIT for six OEMs is relatively modest, around 1/3 of the cut, due to the FX adjustment.

EBIT Estimates

• The firm lowers EBIT estimates by an average of 2.4% for 2016-2020.
• The reduction is primarily due to lower European volumes and FX.
• North American sales volume estimates are also cut for 2018-2020 due to increased cyclical risk.

FMCC Assumption

• The firm increases its FMCC (Fundamental Market Capitalization Component) assumption to 10% from 9%, reflecting heightened macroeconomic uncertainty and higher funding costs.

Key Companies and Ratings

CNH Industrial (CNHI)

• Rating: Conviction List Buy
• 12M Price Target: €8.3 / $9.3
• Upside: 30% / 33%
• Thesis: CNHi is a top-2 player in the global ag equipment market. The firm expects cyclical upside from improving farm incomes and an ageing ag equipment fleet. The current EV/IC multiple is below historical averages, making the valuation attractive. CNHi is forecasted to reach a 7.3% return by 2020E.

Fiat Chrysler Automotive (FCA)

• Rating: Buy (off Conviction List)
• 12M Price Target: €7.1 / $8.0
• Upside: 24% / 27%
• Thesis: FCA's investment case is based on new product launches, operational improvements, and deleveraging. Despite an attractive valuation (2.0x 2016E EV/EBITDAP), the firm expects limited re-rating due to its high leverage. The firm forecasts a 6.1% average ROIC and revised M&A ranking to 4.

Continental

• Rating: Neutral (from Buy)
• 12M Price Target: €198
• Upside: 9%
• Thesis: The firm lowers EBIT estimates due to lower European production forecasts. While the firm remains a key beneficiary of emission standards and ADAS trends, it is downgraded due to limited sector-relative upside.

GKN

• Rating: Neutral (from Buy)
• 12M Price Target: 291p
• Upside: 5%
• Thesis: The firm lowers EBIT estimates slightly but retains a positive view due to its strong aerospace business and synergies with Fokker. However, it is downgraded due to exposure to the UK and Europe, which are expected to have slower growth.

Faurecia

• Rating: Neutral (from Buy)
• 12M Price Target: €31.6
• Upside: 3%
• Thesis: EBIT estimates are unchanged, but the firm sees limited upside due to its exposure to Europe. The price target reflects a more conservative outlook compared to sector averages.

Other Key Companies

• BMW: Buy, 12M PT €80, Upside 17%
• Daimler: Buy, 12M PT €70, Upside 27%
• Hella: Buy, 12M PT €37.5, Upside 19%
• PSA: Buy, 12M PT €13.5, Upside 15%
• Volvo: Neutral, 12M PT 87 Skr, Upside -6%
• Volkswagen (VW): SELL, 12M PT €100, Upside -12%
• Autoliv: SELL, 12M PT $101, Upside -11%
• Porsche: SELL, 12M PT €42, Upside -5%
• Michelin: Neutral, 12M PT €90, Upside 5%
• Nokian: Neutral, 12M PT €32.1, Upside -3%

Key Risks

• CNHi: Weaker farm income, particularly in NAFTA; weaker truck demand in Europe and Latin America; emerging market competition.
• FCA: Risk-off environment; end market deterioration; FX; further recalls; CEO Marchionne "key man" risk.
• Continental: Pricing in tyre business; macro production risks; margin expansion.
• GKN: Exposure to UK and Europe; potential changes in production rates; FX; raw material prices.
• Faurecia: Exposure to European car production; organic growth; FX; raw material prices.

Summary of Changes

Conclusion

The firm has revised its outlook for the European automobile sector due to the impact of Brexit and lower GDP growth. While some companies like CNHi and FCA remain as buys, others such as Continental, GKN, and Faurecia are downgraded to neutral. The revised forecasts and assumptions reflect a more cautious approach to the macroeconomic environment and sector-specific risks.