Launching one new model is a risky business in today’s hyper-competitive European car market, as recent flops like Volkswagen’s new Golf attest. So isn’t PSA Peugeot Citroen taking a huge gamble launching five at the same time?
At the end of last year, The French carmaker launched the small C2 to fill the gap left by the legendary 2CV. It has just launched the 407 midsize sedan. And it is about to launch the midrange Citroen C4, the 1007 small van and the Peugeot 207, a successor to its popular small car, the 206.
There’s no doubt that Peugeot is rolling the dice, updating a big chunk of its range in one go. But it had little choice, having missed out on the last updating cycle because of the need to restructure the business.
That said, its boldness may pay off. One plus point is that it isn’t up against any new world-beaters. In the key small car segment, its two big rivals – VW and Renault – have both recently unveiled disappointing new models. The new cars it has launched to date have received a favourable reception. And, encouragingly, PSA has set demanding public sales targets of 4 million cars a year by 2006, suggesting that it has confidence in the new range.
While betting on new models is a risky game, PSA can afford to take the risk. Compared to most of its rivals, Peugeot’s financial situation is strong. Free cash flow rose from e435 million in the first half of 2003 to e836million in the first half of 2004, boosting its net cash position to e1.1 billion. In an industry in which lots of cash is needed to develop new models, this is encouraging.
Peugeot has used these resources wisely. Last year it was hit by a strong euro – which affected sales in the UK, its biggest market outside the euro area. PSA is now 80 % hedged against sterling.
Finally, PSA is cheap compared to VW – its largest rival – and trades on a similar multiple to Renault. On consensus figures, its enterprise value for 2005 is 18% of sales compared to VW’s pricey 38%. This reflects PSA’s ageing models and uncertainty about new ones. But it also makes it a tempting, if risky, investment.
PSA’s price earnings multiple for 2005 is 6.5 compared to Renault’s 5.5 and VW’s 9.4. Investors used to putting money on German carmakers may well switch to their cheaper French counterparts.
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