Stellantis: all in line, buy target confirmed (NYSE:STLA)

Today, we are back to comment on one of the most important companies in the Exor galaxy i.e. Stellantis N.V. (NYSE:STLA). Very briefly, we will deep dive into the Q3 accounts with a focus on Brazil’s positive trend and then, we will analyze the latest company’s development. Here at the Lab, this year we already commented on Stellantis’ new strategic plan called Dare Forward 2030 and also the half-year results. Concerning the plan, today we will emphasize how the company is moving on.

Q3 and Brazil update

Starting with a brief comment on Q3, the company reported revenue higher than consensus expectations. Bloomberg was forecasting €41.1 billion; however, Stellantis’ top-line sales reached €42.1 billion and were up 29% compared to the third quarter of 2021, mainly thanks to the increase in volumes (+9%), to favorable net prices (+8%) and to the positive effects of exchange rates (+10%). On the nine-month level, the company decreased delivery car volumes by 2% and increased revenue by 21%.

Stellantis’ main driver remains North America with €21.1 billion in the third quarter (up by +36% on a yearly basis) and marks 50% company’s total contribution thanks to volumes (+12% to 441 thousand units) and price development supported by the favorable US dollar rate. However, we should note that in terms of market shares, there was a drop in North America of 20 basis points on an annual basis to 10.8% with the United States down by 70 basis points to 11.1%.

In South America, the group remains the market leader with a 22.6% share; however, it is down by 150 basis points on a yearly basis. Concerning the Brazil data, the company’s top-line sales grew by 28.1% to 57.6k with a negative trend on an annual basis. But, in Q3, it returned to growth, confirming the company’s absolute leadership. Looking at the detail, this was due to the strong demand for the Peugeot 208, the all-new Fiat Pulse, as well as the Jeep Compass that more than offset lower volume due to unfulfilled chip orders. Speaking of numbers, the EBIT margin improved from 6.6% to 13.9% thanks to the company’s operating leverage which more than offset higher raw materials and logistics costs. Stellantis’ strategy in the South American region aims to confirm its leadership position with increasing operating profit margin. Indeed, by 2030 they aim for a 25% market share with an operating profit margin of around 10% with 28 product launches across eight brands (three pickup launches are expected by 2025). In our projection, we are fully in line with the company’s goal.

Dare Forward 2030 update and the latest development

In a time of difficulty in the global supply chains, Stellantis strengthens the value chain for EV battery production, in full support of its Dare Forward 2030 strategic plan. The company announced a non-binding memorandum of understanding with GME Resources Limited to support the future supply of large quantities of cobalt, nickel, and sulfate. All inputs for battery production. In detail, NiWest is an advanced development project and will produce approximately 90k tons per year. To date, the company already invested more than AuD 30 million in preliminary metallurgical testing and drilling. As a reminder, earlier this year, Stellantis already strengthened its supply of low lithium by signing agreements with Vulcan Energy and Controlled Thermal Resources for Europe and North America respectively. As part of Stellantis’ plan, the company confirmed the goal of achieving 100% of the sales mix of battery electric cars in Europe by 2030 and 50% of passenger cars and light vehicles of the same type in the United States.

The Italian unions are asking Stellantis and other companies in the Exor galaxy for higher salaries. The request is part of the renewal of the Specific Collective Labor Agreement of Stellantis, Iveco, CNH, and Ferrari which expires at the end of the year. The main objective is the recovery and protection of the purchasing power of wages to safeguard workers’ incomes. Unions are asking for an increase in salaries of 8.4% in 2023, in numbers, the average monthly increase is €153, with a target of +4.5% and +2.5% in 2024 and 2025 respectively.

Conclusion and Valuation

Here at the Lab, we really appreciated the higher-than-expected revenue and more importantly inventories data that grew globally by 10% to arrive at almost one million units. This data is still at a lower-than-normal level which leaves room for the possibility of maintaining a positive price mix at least in the short term. Therefore, we confirmed our buy rating and the target price at €20. Furthermore, the contribution of the price mix was +10% and was better than we anticipated (+5%), offering more room for maneuvering to offset cost inflation. The guidance for 2022 has been confirmed, but after the results of the first half of 2022, this was not in question. While declining market share at this stage is not a cause for concern, in our view, the group is prioritizing profitability over volume. Important to report is also Stellantis’ market view on China, where the company expects a sales improvement from stable to plus 5%.