The
previous weblog provided detail of the sizable recent share-price
falls for the most of the global eleven auto-makers (akin to many
corporations). This auto-sector reaction stemming from a number of
causes, including: (primarily) the Euro-centric market response to
Ukrainian geo-political unease, partial reaction to Gaza fighting and
the tail-off of Japan's own 'Abenomics' boost; whilst one US producer
suffered market reaction to problematic operational legacy.
However,
of these, it has been the 'European question' that has undoubtedly
been most prolific, the previous combination of Germanic locomotive
influence together with national-based short-term policy actions to
support B2B and B2C consumption, ultimately running out of 'puff'
leading to the recent 'dashboard indicators' of renewed economic
stagnancy. Overall the previous boost effects of conventional
monetary policy proving only short-lived.
Now,
as expected, so as to fend-off the very real threat of deflation the
“Draghi Put” has been announced. The ECB now set to undertake
“unconventional policy”, following the largely successful
footsteps of the USA, UK and Japan. This move consisted of the
necessary blended effect of reduced base-rate, negative overnight
rates for central bank 'cash warehousing' for major banking
institutions and most potent, the effective cash injection that is QE
via bank bond buying, so lowering yield rates and prompting investors
into alternative asset classes; especially equities.
Whilst
eventually an expected action by the ECB for an economically weary
Europe – itself only part-way through its own necessary yet painful
reforms - this is indeed welcome news for a broadly receptive
financial audience: across capital markets' dealing desks, for the
CFO's of large corporations, SMEs, new entrepreneurs, and eventually
for its the trickle-down effect into the mass populace at that is
European 'Main Street' at the regional level.
Thus
it is precisely now that investment-auto-motives presents the
intentionally (slightly) delayed “Coupled Ratio” Analysis.
Q2
2014 Positioning -
As
is well recognised, 'Coupled Ratios' was formulated to coalesce the
most popularly deployed investment measures across the four primary
investment considerations; these being:
-
Market Valuation Ratios
-
Profitability Ratios
-
Liquidity Ratios
-
Debt Ratios
The
first consists of P/E (price/earnings) vs P/B (price to book value).
The second of Profit Margin vs RoE (return on equity). The third of
Current Ratio vs Operational Cash-flow Ratio. The fourth of Total
Cash vs Total Debt.
Resultant
Outcomes -
Market
Valuation Ratios:
For
the majority of the global eleven auto-makers there has been little
effective re-positional movement since the outcome of the first
quarter.
The
exceptions are PSA moving ever nearer operational break-even, so
raising its P/E standing (this not quantified but theorised from more
recent price increases over Q2), and Renault which has seen its
previously overtly high P/E standing reduced by a mix of
profit-taking from previous investors, its P/E still relatively high
given the expectancies of both longer-term 'early-bird' stock-holders
and latter buyers who recognised the latter-day effect of mid-term
price rises as Renault's improved earnings both maintains share price
levels but reduced the resultant P/E value, so drawing-in new batches
of investors.
However,
specifically regards the application of the conservative 'investment
window' set by investment-auto-motives, PSA appears to be at long
last moving into the very bottom of the frame, whilst Renault whilst
now a more price attractive proposition, still sits at a heady P/E;
by far the highest of the eleven manufacturers.
Interestingly,
all the other VMs sit just 'fully valued' just within or just outside
the investment window. All except GM and Ford, which respectively
have overtly relatively high P/E and P/B values, a consequence of the
present strong vitality of the US economy.
As
has been the historical precedent Hyundai sits nearest centre-ground
of the window (with its conglomerate discount), with the once closely
aligned VW over successive quarters headed continually 'north
easterly', now sat more amongst Honda, Toyota and FIAT; with BMW and
Daimler on the window border.
Profitability
Ratios:
Herein
Hyundai, BMW and Toyota respectively sit well within the investment
window, hardly moved from their Q1 status, whilst Daimler has slipped
slightly in its P/E rating to now become positioned on the border.
Likewise are static VW and Honda.
Outside
of the frame, Ford improves its standing to head toward the border,
seeing improved profit margins but reduced RoE in Q2. GM slips (given
its recall problems) whilst Renault improves on both measures in a
substantive positive move. FIAT however sees reduced RoE without
improved profit margins over the Q2 period.
Liquidity
Ratios:
Q2
results saw major shifts in overall liquidity for most auto-makers,
only Hyundai, Daimler and Honda remaining virtually static, the
former two well within the window, the latter sat on the border.
GM's
previous strong standing as a cash generator and storer slipped
notably to leave it positioned beyond the frame. Liquidity reductions
were also seen at Toyota and BMW, but their previous very strong and
strong standings allowed for such movement whilst still retaining
investment proposition status.
Interestingly
(thru' a tough Q2 in the USA) VW saw its operational cash-flow rise
significantly (thanks to retained VW-Audi popularity in
'soft-landing' China) so boosting its strength within the window.
However,
the greatest positive shifts came from FIAT and PSA, both previously
in negative OCF territory, significantly advanced to respectively
just within and well within the investment window. Likewise Ford saw
a dramatic shift as the prime US market (and especially F150)
generated cash, so much so that Ford moves (happily) beyond the
window given its high Current Ratio, awaiting the internal
reinvestment of the sums accrued together with debt pay-down.
Renault
remains far outside the window, hardly moved demonstrating cash use
for new projects CapEx.
Debt Ratio:
An
improved cash position for GM, maintaining a stronger stance within
the 1:2 (cash to debt) segment.
Hyundai
and FIAT remain static on the transition-line between 1:2 and 1:3, so
keeping their attractiveness. PSA jumps from previously outside of
the window (ie beyond 1:4) to now sit just inside the 1:3 segment,
whilst Renault stays static as its slightly less attractive immediate
neighbour.
VW
slips from the 1:3 border to the 1:4 border, on the edge of the
investment window. Virtually static on the 1:4 line are Honda and
Ford, whilst Toyota slips slightly with slightly increased debt.
Outside
of the window are BMW and Daimler, the latter slipping notably
Results
-
As
is the norm, investment-auto-motives illustrates the number of
'investment window' appearances for each company.
Four
Appearances:
Hyundai
(strongly), Toyota (generally strongly), VW (weaker), Honda (weakly).
Three
Appearances:
PSA
(weakly).
Two
Appearances:
BMW
(strongly), FIAT (strongly), Daimler (weakly)
One
Appearance:
GM
(strongly), Renault (strongly), Ford (weakly)
Conclusion
-
The
depicted graphs, representative of matched and merged data sets,
highlight the investment attractiveness of each of the global eleven
players, utilising Q2 results and very recent stock price related
data.
What
is becoming harder to instinctively gauge - so making 'coupled
ratios' more useful than ever - is the need to contrast and compare
the auto-makers with the best availed global markets exposure.
Exposure which encompass the a now nearly “naturally aspirated”
US economy (after its own QE injection), and a soon to be 'direct
injected' European economy, versus a still very prominent soft-landed
China.
All
are global players, and all will inevitably gain, but as will be
seen, some will gain more so, and the seeds of commercial and
investment advantage are plotted herein verses the winds of
macro-economic change.
