France’s PSA Group continues to astonish investors as it produces German style premium sector profit margins from its solid, worthy mass-market cars and SUVs, and they want the company to aggressively seek takeover candidates to work its magic and make big profits.
Not only is PSA now making more money than the likes of BMW and Mercedes, it is doing it at a time when global markets are fragile, and its competitors moan about the harsh CO2 regulatory regime in Europe.
Investors in General Motors too must looking on in blinking disbelief, as PSA even makes money from GM Europe’s old profit nemesis Opel and Vauxhall. It’s hard to believe that when PSA took over these two companies in 2017, they had notched up losses of about $20 billion over the first years of the 21st century.
PSA is now so revered by investors and experts, that they are urging it, and CEO Carlos Tavares, to quickly take over struggling companies like Fiat Chrysler Automobiles (at least struggling with European losses) or Tata Motors of India’s loss-making Jaguar Land Rover, and turn them around.
“The 20 billion euro ($22.3 billion) French carmaker’s chief executive has rescued Opel Vauxhall faster than seemed possible when he bought the struggling General Motors business in 2017. But the group now looks about as lean as it can get, and the automotive market is slowing. Teaming up with Fiat Chrysler Automobiles (FCA) or Jaguar Land Rover would give the cost-cutter more fat to trim,” said Reuter’s BreakingViews columnist Liam Proud.
PSA, which sells Peugeot, Citroen, DS, Opel and Vauxhall branded vehicles, had been favored to merge with FCA until Renault-Nissan stepped in. When that deal crashed and burned, somehow investors lost interest in pursuing a deal. And Tata has vigorously denied it would sell JLR.
In the first half, PSA Group reported an operating margin of 8.7% and 2.36 billion euros ($2.6 billion) of EBIT (earnings before interest and tax), while group recurring income jumped 10.6% to 3.4 billion euros ($3.8 billion), compared with the same period of 2018. French companies only report profits every half-year.
Investment researcher Evercore ISI was mightily impressed too.
“PSA delivered a truly outstanding 8.7% 1st half EBIT margin while Renault and the VW brand are expected to deliver about 4% in the mass market, and premium Daimler/BMW are expected to deliver 5 to 7%. Who is premium and who is the mass-market?” said Evercore ISI analyst Arndt Ellinghorst.
