Faurecia: Backlog Drives Sales Growth as Chip Crunch Lessens and Debt-Reduction Plan Takes Shape

No-moat-rated Faurecia EO reported first-quarter revenue of EUR 6.6 billion, beating the FactSet consensus of EUR 6.4 billion by 4% and up roughly 25% from EUR 5.3 billion on an as-reported basis a year ago. Excluding currency translation, acquisitions, and divestitures, organic revenue increased 18%, or 15 percentage points above the 3% increase in global light-vehicle production. Even though the microchip shortage remains, effects on customer production lessened as backlog ramped up during the quarter. Faurecia’s outperformance versus production was across the board in all operating segments and regions. The French auto-parts vendor discloses only revenue in the first and third quarters while financial statements are published for half- and full-year results. The 5-star-rated shares currently trade at an attractive 53% discount to our EUR 45 fair value estimate.

Management’s 2023 guidance is unchanged. Revenue is expected to be EUR 25.2 billion-EUR 26.2 billion and adjusted EBIT margin guidance is at 5%-6% based on flat global light-vehicle production. We estimate 2023 revenue of slightly more than EUR 26.2 billion but EBIT margin at 5.0%. In our view, new-business backlog supports the upper end of management’s revenue guidance, but continuing industry headwinds, including the chip crunch, the Ukraine crisis, inflationary cost pressures, and potential recession in major auto markets, squeeze margin to the low end.

Management said it has reached agreements for the sale of EUR 1.0 billion in assets as targeted for debt reduction by the end of 2023. Deals that we are aware of include the stake in Hella’s HBPO joint venture, a commercial-vehicle line in exhaust systems, and the SAS cockpit module group. The firm expects net debt/adjusted EBITDA to be 2.0-2.4 times by the end of 2023, down from 2.7 times at the end of 2022. Management targets another EUR 1 billion in asset sales and a 1.5 times net debt/adjusted EBITDA by the end of 2025.